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The People's Bank of China signalled a strong preference on Tuesday for stabilizing, or potentially strengthening, the trade-weighted renminbi, a move that could impact the US dollar and other currencies.
Some 15 of the 25 currencies in the China Foreign Exchange Trade System index saw their central parity fixings raised on Tuesday, with these accounting for 50.73% of the index, seemingly reflecting a strong preference for the trade-weighted exchange rate to stabilize, if not to recover somewhat.
These fixings come after the RMB/CFETS index fell to its lowest level since July 2023 over recent weeks, amid the market fallout over White House trade policy and a rally by the European single currency. They were followed, in Asia overnight, and the subsequent European morning, with a recovery of the RMB/CFETS index.
The fixes matter for the US dollar because the PBoC's basket-based currency management creates a positive correlation with the trade-weighted renminbi, and because the dollar's intermediary role in the market makes it impossible for Beijing to manage the G20/CNY pairs without also directly affecting the G20/USD pairs.
Above: GBP/CNY shown at monthly intervals with various annotations. Click for closer inspection.
The dollar's intermediary role in determining the level of the G20/CNY pairs and Beijing's enforcement of trading bands or limits in those together create implied and de facto limits for the connected G20/USD pairs.
In theory, the trading of USD/CNY slightly below the top of its permissible band (7.3589 on Tuesday) should mean the G20/USD pairs can rise slightly above the caps implied by the upper limits Beijing imposes on the other G20/CNY pairs, however, the G20/USD pairs rarely exceed their implied limits in practice. This indicates US Dollar management, not Renminbi management.
Tuesday’s central parity fixings and related limits for the G20/CNY pairs were/will become relevant for traders if and when the following G20/USD pairs rise into the ranges (or fall into for any USD/G20 pairs) specified here:
USD/CNY: 7.0588/7.0588 (Previous: 7.0602/7.0602), Current Market: 7.2685
EUR/USD: 1.1435/1.1516 (Previous: 1.1399/1.1482), Current Market: 1.1390
USD/JPY: 141.51/140.52 (Previous: 142.84/141.81), Current Market: 142.29
GBP/USD: 1.3469/1.3564 (Previous: 1.3351/1.3448), Current Market: 1.3395
USD/CHF: 0.8197/0.8139 (Previous: 0.8249/0.8189), Current Market: 0.8241
AUD/USD: 0.6451/0.6496 (Previous: 0.6418/0.6465), Current Market: 0.6383
NZD/USD: 0.6001/0.6043 (Previous: 0.5993/0.6036), Current Market: 0.5930
USD/CAD: 1.3773/1.3676 (Previous: 1.3791/1.3691), Current Market: 1.3862
USD/SEK: 9.5558/9.4889 (Previous: 9.6434/9.5740), Current Market: 9.6397
USD/NOK: 10.3082/10.2360 (Previous: 10.3822/10.3075), Current Market: 10.3760
Above: Australia’s Savage Garden Sings “Truly, Madly, Deeply.” Source: Youtube.
For readers who don’t know, the PBoC operates a managed-floating exchange rate in relation to the 25 currencies contained in the China Foreign Exchange Trade System Index, including Sterling, with a view to ensuring the Renminbi remains “basically stable” in a trade-weighted sense.
The success of this policy is why the RMB/CFETS index has not appreciated at all in the almost-ten years since the benchmark was first announced in something like December 2015. However, this basket-based approach to the currency and the US Dollar’s intermediary role in the market have together created a quasi peg between the trade-weighted US Dollar and the trade-weighted Renminbi.
This matters because one of those currencies is “undervalued” in an economically troublesome way, while the other is “overvalued” in a similarly problematic respect, and because both currencies have come under intense pressure since US President Donald Trump’s “Liberation Day” tariff announcement on April 2.
That pressure has at times appeared to be mutually reinforcing, however, the PBoC has been actively battling against it, while US government officials have been publicly proclaiming to have a so-called strong Dollar policy; All the while implementing policies that actively undermine the currency and its local asset markets.
Above: Bonus Song; Britain’s Dire Straits sing “Brothers in Arms”. Source: Youtube.
Some of the most intense declines came in the lead up to Passover and Holy Week in an effective recasting and retelling of the Exodus story. This describes the escape of some early Israelites from Egypt, in the Old Testament book of the same name, a story in which Moses receives commandments and a covenant while sojourning on a mountain, only for the latter to later be broken, leading to the events described in the Book of Jeremiah where it says "the people of both Israel and Judah have done evil and aroused my anger by burning incense to Baal," among other things. The Exodus story can be found in Chapters 12:20, and the covenant in the Chapters up to 24.
The Exodus story is still very much a live theme it would appear, and not solely because US tariff policies are likely to undermine profits and earnings for corporate America in the near-to-medium term, but also because market-multiples-based valuations are currently obscene and gluttonous.
“There has been a sharp stop of foreign investor inflow into US bond and equity markets over the last two months. Our broad takeaway is that the flow evidence so far points to an, at best, very rapid slowing in US capital inflows and, at worst, continued active disinvestment from US assets,” says George Saravelos, head of FX research at Deutsche Bank, writing in a Monday research briefing.
Others have suggested tariffs will lead to a destruction of capital through the impact they have on the so-called supply capacity of the US economy, thus undermining its value, and that might not be entirely an academic mythology. Irrespectively, it is one of numerous reasons many in and around the market now see the Dollar as still having further to fall, and in some cases, the forecasts are for significant falls.
Above: Bonus Song; Germany’s Alphaville sings “Forever Young.” Source: Youtube.
“The USD is strong, is very elevated and is way overvalued on a lot of metrics. The USD needs some air let out of the balloon and any rebalancing of global economic imbalances will naturally involve some USD weakness. But I would argue we are in the first inning of a very long, quarters and years, not weeks and months, type of process,” says Brad Bechtel, global head of FX, at Jefferies.
“China could speed up this process by revaluing the RMB stronger, if they chose to, and maybe we still end up in that place down the road. As much as the USD is overvalued the RMB is extremely undervalued and due for a rally. If China and the US can agree to put USD/CNY to 6.0000 instead of 7.2100 it would greatly help the imbalances we all care about,” he adds, in a research briefing on Friday.
All of this is why the People’s Bank of China ideally needs to reconsider the merits of the quasi peg it maintains between the Renminbi and US Dollar, and if it really and truly does want a stronger currency, should perhaps ought to consider re-pegging the Renminbi to another currency better able to accommodate its strength.
Pound Sterling would be a perfectly viable option for Beijing because one way or the other, it is now on a one-way trip to the topside, one in which it evolves into something like the ‘sion’ of a tall and ever growing tree, one of two Willows on the Water, while acting as a source of life for a healing ‘Pool of Bethesda’ below. Further details; Pound to Dollar Forecast: Graceful and New Takes to Caribbean Blue.
Above: Extra Bonus Song. The Celts’ Enya sings “The Celts.” Source: Youtube.
This is in some ways the one and only opportunity the PBoC and decision makers in Beijing will have in order to ensure that China becomes one of the “Brothers in Arms,” or one of the fabled Knights of the Round Table.
That’s because ‘Michael Owen’ is on the field, with a Wise One, and he likes Dance Music, as well as Life in Miami. Nobody, anywhere, ever, should want that! Not without the Grace of God, and a truly Gifted Tongue.
Decision makers in Beijing reportedly said on Tuesday something like; “China Vice Premier He Lifeng: We need to calmly analyse and respond to recent developments and changes in the external situation - Xinhua.”
The trouble is that; TIME IS RUNNING OUT!
The timeline under way is beyond the control of human hands!!!!!!!!!!!!!
Above: Extra, Extra Bonus Song; New Zealand’s Hayley Westenra and Celtic Woman both sing Simon and Garfunkel’s “Scarborough Fair”.
“Delusions of Homo Economicus aside, we each see the world differently via the unconscious cognitive ‘grid’ we all impose on it. Yet in highly unstable times, one needs to check if one’s grid is stable enough to cope,” says Sir Michael Every, a global strategist, at Rabobank.
“To cap the morning off, the founder of Binance says he thinks the creator of Bitcoin was an AI from the future. Really. [??} Expand your grid immediately - or risk blackouts,” he adds, in a Tuesday market commentary.
Britain’s so-called grid is most certainly, and without any shadow of any doubt whatsoever, stable enough!
For the British people are of a great and ever growing, Celtic, Willow Tree!!!!!!!
Above: Super, Super Bonus Song; Florence and the Machine: Rabbit Heart. Source: Youtube.
Everything I do here is for nothing less than The Glory and Grace of God; the Lord of Lords and King of Kings!
Praise God, and Nobody Else, and Always Remember His Covenants!!!!!!!!!!
“Bless the Lord, oh his Holy Name and all that is within me, Bless his Holy Name, Bless the Lord, oh my soul, and forget not all his benefits,” - Psalm 103, A Psalm of David, NKJV.
“I waited patiently for the Lord; and he inclined unto me, and heard my cry. He brought me up also out of a horrible pit, out of the miry clay, and set my feet upon a rock, and established my goings. And he hath put a new song into my mouth, even praise unto our God: many shall see it, and fear, and trust in the Lord,” - Psalm 40, To the Chief Musician, A Psalm of David, NKJV.
Exodus - Chapters 1:29, NKJV....the Final Chapter is coming.
Jeremiah 30 - Full Chapter, NKJV
Jeremiah 31 - Full Chapter, NKJV
John 5 - Full Chapter, NKJV
Trivia: The name Enya is more than just an anagram for the Amharic words “Yane” and “Ayne.”
Above: It's the Summer of 1987, and You're Driving in Miami. Source: Youtube,
Under those circumstances the author thinks that GBP/USD could rise from 1.33, to 1.44, without any further adieu and in price action that would be reflective of something like the Michael Owen of 2002 lore, settling a close-run score forever more.
That would be an FA Cup victory, carrying Liverpool United to a treble composed of the FA Cup, the League Cup and the UEFA Cup all wrapped up in one. Totally unprecedented!!
Added, Super, Duper, Trooper, Multi-Scooper Bonus Song: See Below;
Above. Enya sings “Echoes in the Rain.” Source: Youtube.
Readers should note that this article is really just a glorification of the Lord of Lords - and the King of Kings - who on this day of great blessings, gives most generously to all things, irrespective of whether great, new or few. And not least because, if there was ever such a thing as Glossolalia, then it would probably come with the gift of at least some form of regalia;
Above: Bannarama sings “Cruel Summer.” Source: Youtube.
The final covenant of the Holy Bible, NKJV, and a gift of the divine;
Above: Sweden, and the European Central Bank’s “Roxette,” sing; “Listen to Your Heart."
I believe in you who are pure and true so come with me to the Carribean Blue my Love!!
Something extra;
Above: The Celts’ Enya sings “Athair Ar Neamh (Father in Heaven). Source: Youtube.
Note: Readers who find themselves in need of spiritual guidance at any point in the days, weeks, months or years ahead could always perhaps seek and find it in Charles II, King of England, the Celts, and the Commonwealth nations.