The timing of Chinese revaluation, despite growing expectations of it in financial markets, took many investors by surprise.
Dollar tumbles against the yen
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The timing of yesterday's Chinese revaluation, despite growing expectations of it in financial markets, took many investors by surprise.
The dollar tumbled against the yen in heavy volumes as traders, scrambling to unwind their positions, judged the Japanese government would now tolerate a stronger currency. By early afternoon in New York, the yen had moved 2.1 per cent higher to Y110.06 against the dollar.
On the Chicago Mercantile Exchange, yen forex futures contracts volumes reached 97,000 by midday compared with 61,000 during the whole of Wednesday.
Before Beijing's announcement, the Japanese yen had been falling sharply amid talk of an early general election in Tokyo.
“The People’s Bank of China will make adjustments to the Rmb exchange rate band when necessary according to market development as well as the economic and financial situation.”
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Monica Fan, global head of foreign exchange strategy at RBC Capital Markets, said: “The timing of the revaluation was a little bit earlier than we had anticipated.” Trading volumes in other Asian currencies were heavy as investors bet that several countries in the region would be forced to let their currencies strengthen against the dollar.
Although Hong Kong and Singapore announced they were leaving their currency regimes unchanged, many investors expect pressure for more currency adjustment to intensify in China and elsewhere in the region.
Goldman Sachs, in a research note, said: “We think this is the beginning of a series of adjustments.” Separately, the price of US government bonds fell, amid concerns that China's purchases of Treasuries would slow in the coming months. The yield on the 10-year government bond moved above 4.25 per cent, after a Wednesday close of 4.16 per cent.