Why Currency Wars May Be On Back Burner
U.S president has got much on his position at the moment. From getting a new security advisor to the batting off claims, Trump was aware of the General Flynn's contract with Russia citizens before becoming a formal team member His threats of labelling China a currency manipulator is one thing that he may need to place the back burner in the meantime while he takes care of the developing storm.
China goes with the dollar's flow
An established table shows a simple correlation analysis of the U.S dollar index whereby the Chinese renminbi or spot, including the euro or the U.S dollar. The results enable for very interesting reading. The analysis makes use of the weekly correlations for the whole of past year and researched that Chinese renminbi, and the U.S dollar, both consist 0.79, which is a strong positive correlation, meaning that within last year, the Chinese currency has moved together with the U.S dollar almost 80 percent of the period. It's clear that even if you move to the more volatile daily correlation analysis, Chinese renminbi moved alongside the U.S.D by 63 percent of the time, being still significant.
Can Donald Trump justify calling China a currency manipulator?
This analysis could thoughtfully weaken Trump's argument which claims that the China government is manipulating its renminbi. Even though the China's currency has dropped by 6 percent versus the U.S dollar during the past year, fact being that it has been strictly tracking the U.S Dollar, even though the U.S dollar has had a better performance, says that the China is not actively wanting to weaken the china currency versus the U.S dollar.
In contrast, the analysis could support Donald Trump to criticize Germany. The Germany currency has continued in an opposite direction versus the U.S.D 96 percent within the past twelve months, corresponding with the uptrend in the U.S.D and the profound downtrend of the euro.
Germany cannot block the euro weakening
The devil is in the control, and this is the time that Trump's argument weakens. Germany doesn't manipulate the euro, again, even it does not set monetary policy for currency bloc that is far down ECB. Likewise, weak growth and political risk across the money bloc have participated in the recent demise of the euro, which again is out of Germany's control.
In contrast, China actively manages its currency but has recently untightened the reigns, also having let the renminbi to closely track U.S.D. To highlight this, in the year 2014, the china currency didn't have a reasonable correlation with the U.S dollar index.
Currency differences no scare to risk sentiment
What does all this mean? After lashing out at Germany authorities, who run a trade surplus with the United States and a currency weak. When Trump met Japanese P.M, Abe, he didn't label Japan a currency manipulator, though the country has got trade surplus in hand
with the United States, and keenly tries weakening its currency through in a much loose monetary policy.
This is important, as problems begin boiling over at home, Donald Trump may leave his arrangements to talk down the U.S dollar in order to label those countries with weaker currency manipulators.