Thursday, October 8, 2009

Asia Intervenes - Props Up Dollar

Central banks in Asia moved into the currency markets in order to stop the strengthening of their currencies against the U.S. dollar in order to keep their manufacturing sector from faltering as their exports slow down.

From the middle of 2005, China has allowed the renminbi to appreciate against the U.S. dollar by about 20 percent, but now has re-pegged the currency with the U.S. dollar to also protect their exports against slowing down, thus the response by the other Asian countries to strengthen their currencies in order to counter China's move.

Among Asian central banks buying U.S. dollars were Hong Kong, Singapore, Taiwan, Thailand and Malaysia.

While some fear the move violated the recent agreement of the Group of 20 to work on a more balanced global economic growth, most traders seem to feel that this is an effort to control the pace of the weakening U.S. dollar, rather than attempt to artificially prop it up.

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