China Slams Dollar, Yen Looks Great

Jack Crooks takes a closer look at China and its ability to control currency values. In this issue of Money and Markets, Mr. Crooks explains the impact China is having on the U.S. dollar and the Japanese yen.

Jupiter, Fla. (PRWEB) November 11, 2007 -- Jack Crooks takes a closer look at China and its ability to control currency values. In this issue of Money and Markets, Mr. Crooks explains the impact China is having on the U.S. dollar and the Japanese yen.

China is getting very good at controlling currency values. While it's no secret they've been artificially suppressing the value of the Chinese yuan, they're now pushing down the value of the U.S. dollar, too.

On Wednesday, November 7, Cheng Siwei, vice-chair of China's National People's Congress, said his country should readjust its foreign exchange reserves to favor currencies that aren't falling off a cliff. With the buck losing value on a daily basis, it's obvious why China needs to take a more prudent approach to their $1.43 trillion in reserves.

And Xu Jian, a vice director of the country's central bank pointed to the end of the U.S. dollar as the world's reserve currency. Unfortunately for the buck, these comments didn't come from a couple of low-ranking public servants. They came from two Beijing bigwigs with $1.4 trillion behind them.

There's no telling exactly where China will reallocate its reserves or to what degree. What is clear, however, is that the Chinese will be dumping dollars. And one likely way they'll do that is by using sovereign wealth funds.

The dollar is falling behind other world currencies because of the Fed's accommodative monetary policy. Bernanke and company are busy lowering rates to help bail out Wall Street, while other central banks are either maintaining their current rates or raising them.

Real world example: The Reserve Bank of Australia boosted their benchmark lending rate from 6.5% to 6.75% earlier this week, further increasing the yield advantage of the Australian dollar over the U.S. dollar.

And even if a country's central bank leaves rates unchanged, their currencies are still gaining a yield advantage over the dollar every time the Federal Reserve slashes the fed funds rate. That means the euro, the Australian dollar, the Canadian dollar, the Swiss franc, the New Zealand dollar and even the British pound will look more and more appealing to global investors seeking higher yields.

For weeks the Japanese yen has been primed for a major rally. Now, it looks like China has stirred the pot enough to get things moving! Right after the Chinese dished out their anti-dollar commentary, the yen staged a massive rally and challenged recent highs.

China will begin allowing its yuan to rise much more quickly to help fight inflation. In turn, Japan will feel less pressure to keep the value of the yen low, and it will likely hike interest rates!

Right now, the Japanese have to suppress the value of the yen so they can stay competitive with China's exports. But they're ready to hike as soon as they can. In fact, less than a week ago, Bank of Japan governor Toshihiko Fukui expressed the need for a timely interest rate hike, saying keeping rates too low was risky.

"Bottom line: The yen really came to life this week and I sure as heck think there's more upside ahead," says Crooks.

To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1172

About JACK CROOKS & MONEY AND MARKETS
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Jack Crooks is a financial advisor specializing in the currencies arena. He is the editor of Weiss Research's currency services as well as a regular contributor to its daily e-letter, Money and Markets. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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