DealZone

The afternoon deal: Yuan politics

June 21, 2010

The markets cheered China’s move on the yuan but its not all good news reports Scott Malone. Risks abound.

For the corporate winners and losers here is a quick breakdown. WSJ has graphics on winners and losers here.

Chinese policy is often viewed with a healthy dose of skepticism but on this occasion the distrust is unwarranted, Forbes reports. A firmer yuan is beneficial to China and the new policy sends a signal that the country is confident in it prospects going forward.

Some currency traders were caught off guard with China’s move on the yuan. The crisis in Europe and the lingering economic downturn in the U.S. had some investors thinking China would not change its policy, the WSJ reports.

A stronger yuan may boost domestic demand, making consumers a key driver of growth, Bloomberg reports. A stronger currency will make foreign goods cheaper for both consumers and companies. From the contrarian point of view, yes a cheaper dollar against the yuan looks like it may boost U.S. exports, but it will not. The Chinese will be buying domestic goods.

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