China sounds like it is readying itself to return to a crawling USD peg rather than the fixed peg it has assumed for the duration of the global financial crisis.
The impact on the major currencies is likely to be less dramatic than it would have been when the dollar was extremely weak like during the middle of 2009. That’s because there has been less reserve diversification of late and the market is better balanced between bulls and bears, in my opinion. If China moved to allow a modest appreciation in the CNT with the dollar at extremely oversold levels, there would have been a rush to cover dollar shorts. These days, the market is long the dollar, but not extremely so…
