Chinese Premier Wen in no uncertain terms has told the US that they will not be pressured into revaluing the yuan and when the moment does come, it will be under China’s terms. He said “I do not think the renminbi is undervalued…We are opposed to countries pointing fingers at each other or taking strong measures to force other countries to appreciate their currencies.” The Shanghai index fell to a 4 1/2 week low in a response to more talk of policy tightening. In a ‘be careful of what you wish’ for moment, if China succumbs to the pressure of the US Congress and revalues before they are ready, they will acquire less reserves, less money will then be recycled into US Treasuries, and thus higher interest rates will follow as the largest holder buys less. A convertible yuan is inevitable at some point but political pressure won’t make it happen any faster. EU finance ministers meet for 2 days but no bailout plan for Greece is imminent.

Category: MacroNotes

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