China's Currency Appreciation – Much Ado about Nothing

China’s Central Bank Statement which signaled more flexibility in yuan’s fixed exchange rate to the dollar led to a major market rally in commodities ,emerging markets and even the US markets for a short while.However the euphoria that the currency appreciation would solve the global problems is quite delusional to say the least.Yuan reforms first of all do not mean appreciation,it could easily lead to Yuan Depreciation as can be seen 2 days after the announcement.While the whole world goes gaga thinking that the Chinese will appreciate their currency leading to less Chinese exports and more imports,the yuan remains more or less at the same leve.

The Yuan did appreciate by 0.4% on June 21st which is quite a small change in these days of heightened currency volatility and on June 22nd it has given back half of the minuscule gains.The sharp appreciation expected by the US and Europe seems remain a dream in my opinion as Chinese exporters are still reeling from the nearly 20% peak to current depreciation of the Euro against the Yuan.China would not want to weaken its Economy further when it faces numerous external and internal problems.

China Central Bank Tames Yuan Appreciation Hopes – WSJ

The Chinese yuan weakened against the dollar Tuesday, in an apparent effort by the central bank to tame excessive hopes of yuan appreciation and convey the message that its promised exchange-rate reform doesn’t mean a guaranteed one-way bet.The move came after a dramatic trading session Monday when the People’s Bank of China let investors drive the yuan to its strongest level against the dollar in the modern era, following a move by Beijing over the weekend to ease the yuan’s nearly two-year-long peg to the dollar.Around 0629 GMT Tuesday, the yuan was trading at 6.8215 to the dollar in the over-the-counter market, more than 0.3% off Monday’s close at 6.7976.