Reflecting on the Chinese Yuan Revaluation

Today marks the one-month anniversary of China’s decision to remove the Yuan’s peg to the Dollar, and allow it to float. Now that the news has had a chance to wend its way through the financial markets, I think it’s time both to reflect and to forecast.

Over the last month, the Chinese RMB has appreciated by slightly less than 1% against the Dollar, although most of that jump took place in the day that followed the June 19 announcement. After the initial excitement faded, a sense of disappointment set in as it became clear that China had no intention of allowing the RMB to appreciate rapidly: “The subsequent appreciation of the yuan against the dollar is likely to be small, perhaps just a few percent over the remainder of the year.” In fact, futures prices reflect only an additional 1.5% appreciation over the next 12 months.