As China’s renminbi has been included in the IMF elite currencies and the Fed has started its rate hikes, conventional wisdom sees the RMB weakening and US dollar strengthening as simple long-term trends. The realities are far more complex, however.
The thinness of the order-driven capital markets is making price action that seems more inexplicable than usual. The US dollar is mixed. It has recouped all the ground it lows against the euro yesterday, as the single currency briefly dipped below $1.09 in the North American morning. It was unable to build on yesterday’s gains that had carried it up to almost $1.0950. Despite some fraying, the $1.08-$1.10 trading range still seems intact.
Speculative position adjustments in the currency futures were minimal in the immediate aftermath of the ECB’s December 3 meeting and US employment data the following day. However, activity dramatically increased in the days ahead of the FOMC meeting on December 16.
The climate summit in Paris has shown that global big business is now also on board with the transition to a low-carbon economy.
However, the most promising instruments in finance for promoting green investing, particularly green bonds, have been around for almost a decade now, starting with the European Investment Bank (EIB) Climate Awareness Bond in 2007.
Why haven’t green bonds entered the mainstream of finance, and what is holding them back?
Following the mini-devaluation in August, the yuan appreciated in September and October. It began depreciating again in November and this has continued through the first half of December.
The dollar finished the local session at new multi-year highs against the yuan. Many observers see in the pre-weekend announcement about monitoring the yuan against a basket as an indication of the intentions of officials to push their currency down further against the dollar.
Activity increased during the Commitment of Traders reporting week ending 8 December. There were four significant (10k+ contracts) gross currency adjustments by speculators. Given that this period covers the second largest gain in the euro’s history, it is surprising that it did not meet the threshold. It is astounding that speculators added only 1.8k contracts to their gross long position
The US dollar turned in a mixed performance in the week following the ECB’s surprise and the healthy US jobs report. In some ways, the greenback was like a fulcrum, not the driver.
The dollar-bloc currencies and the Norwegian krona were on one side, and the euro, Swiss franc, yen, and sterling were on the other. The continued and sharp drop in energy prices and commodity prices more generally, coupled with risk-off impulses spurred by equity market declines, and year-end position adjustments were the main considerations.
Anglo American, one of the largest mining companies in the world, has announced a restructure that will cut 85,000 jobs worldwide, a reduction of its workforce by almost two-thirds. The move follows a huge downturn in commodities prices, which have been decreasing since 2011 and have hurt the revenues and profits of mining companies across the globe.
The cat is finally out of the bag. The IMF has confirmed that the Chinese yuan will be included in the Special Drawing Rights (SDR) basket of reserve currencies. It was only a matter of time until the IMF acted on this, despite the considerable pressure exerted from the United States and other developed economies. The United States, and others, remained sceptical about the feasibility and durability of the Yuan in serving as one of the ‘elite’ reserve currencies owing to its inscrutable management in the past.
China’s instructions from the IMF were that, as an operational requirement for joining the SDR, the gap between the onshore and offshore yuan (CNY and CNH respectively) needs to close. This was important for central banks to hedge. The opposite is taking place.
