The German Handelsblatt newspaper published an article yesterday by MarketWatch columnist David Marsh over a suspected agreement between the PBoC and the Fed.
In the article, Mr. Marsh speculates that the clandestine understanding exists to protect Beijing’s vast exposure to the dollar by pledging stability in the dollar, and allowing the yuan to appreciate moderately.

Meanwhile, China’s stated aversion to US quantitative easing is said to be providing cover for the Fed’s eventual exit strategy and to be supportive of Mr. Obama’s intention to wait and see on a second stimulus package. The Wall Street Journal invited a guest columnist of its own, Ben Bernanke, to publish an opinion piece this morning on ‘The Fed’s Exit Strategy’. Chairman Bernanke, perhaps preparing the markets ahead of today’s Humphrey-Hawkins testimony, writes that although accommodative policies will likely be warranted for an extended period, the FOMC will eventually need to tighten to prevent inflation. ‘However’, he states, ‘economic conditions are not likely to warrant tighter monetary policy for an extended period’.

About this time one year ago, the EUR/USD was trading around $1.60

and we were projecting the dollar to fall even further. Then a

mysterious long-term seller of euros moved in to effectively stabilise

the US currency’s rapid depreciation. Since then the euro has been

able to rise only very slowly against the dollar, which has given market

participants plenty of opportunity to hedge against dollar inflation.

About this time one year ago, the EUR/USD was trading around $1.60 and we were projecting the dollar to fall even further. Then a mysterious long-term seller of euros moved in to effectively stabilise the US currency’s rapid depreciation. Since then the euro has been able to rise only very slowly against the dollar, which has given market participants plenty of opportunity to hedge against dollar inflation.

Coincidence or more ?