The second half of the current round of depreciation of the dollar will bottom out

2007 Nian 7 Yue Zhi 2008 Nian 3 month U.S. dollar depreciation rate showing a large, spread to a wide range of factors and LM317LZ datasheet and the volatility of many great features.

Round of dollar depreciation against the RMB exchange rate structure optimization, may offset the effects of monetary policy in China, and LM317LZ price and not conducive to the formation of Chinas Rational asset prices, thereby adversely affect Chinas financial ecosystem.

Long-term equilibrium exchange rate against the U.S. empirical studies have shown that the current round of dollar dollar crisis will not lead to systematic depreciation of the dollar is the bottom of the fundamental conditions for the delayed impact of the subprime mortgage crisis the U.S. dollar to fully show the stabilization of the equilibrium exchange rate eliminate the possibility of long-term deterioration of the dollar depreciation is likely to bottom out the timing of the second half of 2008.

The third quarter of 2007 since the outbreak of the subprime mortgage crisis, accelerated depreciation of the dollar and LM317LZ suppliers and stimulate international oil prices, gold prices soared, resulting in a "three gold (U.S. dollars, gold and black gold oil) transaction" for the representation Preliminary international monetary system disorders. Affected by the international financial market volatility, the further spread of panic, European and American policy regulators to curb the continued deterioration of the subprime mortgage crisis increase the potential difficulties, by the direct impact of the subprime mortgage crisis in emerging markets smaller faces increasing pressure on currency appreciation and the external the challenge of proliferation of financial risk.

This, the Chinese Government is highly concerned. March 18, 2008 after the conclusion of the session, Premier Wen Jiabao at the Great Hall answered a reporters question made it clear that: "What concerns me now is the continuous depreciation of U.S. dollar to bottom out when?" For This relates to the subprime mortgage crisis, world economic development, international financial stability and the key issues of Chinas economic growth, the report will state the current round of dollar devaluation, a brief analysis of the characteristics and causes, and to study their ecological impact on Chinas financial, and long-term equilibrium exchange rate with the dollar estimate to determine the future direction of U.S. dollars.

Round of dollar impact on China

For the United States, the dollar is conducive to stimulate exports, promote economic growth, and promote trade deficit improved, but for the world economy and international finance, the U.S. dollar led to an initial disturbance of the international monetary system and global financial market turmoil will increase the overall risk. As for previous capital projects not yet fully open and not subject to direct impact of the subprime mortgage crisis China, the U.S. dollar are three channels through a negative impact on Chinas financial ecosystem. And, given the risk of transmission of financial shocks than the real economy, more rapid depreciation of the dollar exchange rate system reform in China, monetary policy and asset price effects may be more apparent.

(A) depreciation of the dollar against the RMB exchange rate optimization

In the initiative, controllability and gradual progress under the guidance of the three principles of the past three years, Chinas market-oriented exchange rate formation mechanism reform has achieved remarkable results. Rapid depreciation of the dollar exchange rate exacerbated the imbalances within the structure in 2007, 6.9% appreciation of the RMB against the U.S. dollar against the yen appreciation of 2.44%, 3.75% against the euro, suggesting that the RMB exchange rate does not fully reflect real changes in the equilibrium exchange rate trends . Although the RMB exchange rate is adjusted with reference to a basket of currencies, the dollar exchange rate and the RMB exchange rate remained more closely linked the dollars stumble endlessly in fact the bilateral exchange rate of RMB against other currencies, effectively decided the formation of the constraints, it is not conducive to the real exchange rate market Formation of supply and demand.

In addition, non-US currency depreciation may help to diversify Chinas foreign trade, but because of the current round of global foreign exchange market the dollar has brought out a high degree of volatility, this diversity is more fragile path, once the euro value of the rational return Chinas trade structure may be repeated in the encountering more complex exchange rate risk.

(B) the depreciation of the dollar may offset Chinas monetary policy effects

Exchange rate on the structure of the global effect of price stability, the market can easily be overlooked, in fact, it is decided that national monetary policy interaction, an important factor in sharing the cost of inflation. Since the outbreak of the subprime mortgage crisis, the Federal Reserve to rescue the market confidence, ease the credit crunch, repeatedly lowered interest rates to stimulate economic growth; and at the same time Chinas economic growth regulators on the possibility of shifting from fast overheating and inflationary pressures still exist, use of various monetary policy instruments with a series of tightening operations. Currently, most market participants zeroed in Fed policy to offset the impact of the sub-prime role to play on, in fact, whether Bernankes loose policy could save the U.S. economy, its external effects can not be ignored.

Price indicators from the two most recent data, the U.S. dollar as the international transfer of risks to inflation and create a channel. March 14, 2008 release of the U.S. February CPI chain constant, an increase of 4.0%, lower than the expected level; and released before the March 11, China February CPI rose 8.7%, the highest 10 years monthly gain a new high. According to March 12, China announced financial data, in February of RMB 243.4 billion yuan of new loans, up 170.4 billion yuan less than that; RMB loans was 15.73% year on year growth rate than the end of last year and January fell 0.37 and 1.01, respectively, percentage points, "tight credit" policy paying off. However, inflationary pressures are still increasing at the same time, one important reason is that inflation in China contains a number of uncontrollable external factors, the dollar triggered a surge in international commodity market prices, increasing global inflationary pressures, which worsened the Chinese monetary policy regulation of external financial ecology.

A series of loose monetary policy the Fed has not brought about inflation and the monetary phenomenon, but a series of tight monetary policy in China has failed to curb price increases rapidly, so some trend attributable to weak U.S. dollar easing out through the inward rather than the release of the risk of inflation.

(C) depreciation of the dollar is not conducive to rational formation of asset prices in China

As Chinas financial market infrastructure is still perfected, the formation of asset prices by the complex influence of many factors. The depreciation of the dollar to the Chinese market through three channels to a potential impact: first, the depreciation of the dollar exchange rate channel by reducing the profitability of Chinas foreign trade enterprise space, making the lack of asset prices continued to rise a strong material foundation; second, depreciation of the dollar By cracking down on confidence in the economy to create a larger drag on the stock market in Europe and America, and the international linkage of the growing Chinese market has also been cross-infection; Third, the dollar through increased global liquidity surplus to Chinas markets to cross-border capital flows increase the risk of a weak dollar background, lack of stable investment in different places greater degree of global capital market, frequently out of all kinds, as the largest emerging market in China has been one of great concern in the international capital, which greatly increased the regulation the difficulty of making the formation of asset prices in China are subject to greater uncertainties.

In short, the dollar is exporting financial risk, whether or not the United States have been deliberate, China should be highly concerned about the impact of depreciation of the dollar, and the future direction of the dollar exchange rate formation of rational judgments.

Round of dollar depreciation trend

(A) of the U.S. dollar nominal exchange rate changes

Nominal exchange rate is not adjusted for inflation the exchange rate, U.S. dollar nominal exchange rate of the overall change in the dollar index (DXY index) and the U.S. dollar nominal effective exchange rate (Nominal effective exchange rate) comprehensive reflection. The former comes from Bloomberg (Bloomberg), by including 6 a basket of major currencies, exchange rates from; which comes from the Bank for International Settlements (BIS), including 52 by a basket of major currencies exchange rates from.

2007 Nian 7 2 January to 21 March 2008, the U.S. dollar index fell 81.395 points to 72.709 points, 190 days of the depreciation rate of 10.67%; July 2007 to February 2008, the U.S. dollar in nominal effective exchange rate fell to 82.11 points from the 86.65 points, 8-month depreciation rate of 5.24%. The difference that most of the world currencies relative to the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc greater overall extent of the devaluation. March 21, 2008 quarter and the previous month, the dollar index was 6.48% and 3.83% depreciation; compared to November 2007 and January 2008, the U.S. dollar nominal effective exchange rate depreciation rate were 0.64% and 0.77%.

(B) of the U.S. real exchange rate changes

The real exchange rate is to remove the currency exchange rates, the dollar change in the overall real exchange rate by the U.S. real effective exchange rate (Real effective exchange rate) comprehensive reflection. BIS data show that by including a basket of 52 currencies the exchange rate adjusted for inflation after conversion from. July 2007-February 2008, the U.S. dollar real effective exchange rate fell to 83.61 points from the 88.73 points, 8-month depreciation rate of 5.77%, nearly a quarter and one-month depreciation rate were 0.5% and 0.87%. The characteristics of this round of dollar

First large magnitude. In the July 2, 2007 to March 21, 2008 of more than eight months the U.S. dollar index was down 10.67%, a significant depreciation of the magnitude of the rare 20 years.

Followed by a wide range. Although the structure is now depreciate each other means that is not a pure sense of the current round of dollar depreciation on the full, but the current round of dollar depreciation affected a wide range. The third is the impact of many factors

. As the nominal exchange rate without inflation adjustment, so the result from changes in currency exchange rate fluctuation in the name, since January 1994, the U.S. dollar in the most volatile period of time, the U.S. dollar nominal effective exchange rate and the volatility of real effective exchange rate deviation are relatively obvious. The current round of dollar depreciation in the nominal exchange rate and real exchange rate has a strong synchronization, July 2007-February 2008, the two were depreciated by 5.24% and 5.77%, 0.53 percentage points lower than the volatility time series deviation from 0.98 percentage points on the volatility of deviation from the average. This indicates that the impact of this round of depreciation of the dollar many factors, combined with background analysis, the exchange rate against the U.S. subprime crisis not only includes the impact of monetary factors, but also contains the real economy factors.

Fourth is great volatility. This round of dollar depreciation is not a stumble endlessly all the way down to November 23, 2007 and March 17, 2008 marked the bottom two stage history of the dollar, after the subprime mortgage crisis a "rebound again fell to to drop and then rebound, "the ups and downs, the process of showing a larger depreciation of volatility, and to continuously create and update a variety of historical record. November 23, 2007, when the dollar index hit a new low against the euro fell to record lows against the pound fell to a 26-year low, on the Canadian dollar slid more than a century since the unprecedented level; 3, 2008 17 May, the U.S. dollar index briefly hit a new low, a new record high against the euro, the yen fell below 12 and a half low, again and again against the Swiss franc is also a record low.

Strong reflection of the volatility of the subprime crisis reverberations instability in the context of market expectations, on the other hand also increased the difficulty to determine trends in the dollar. March 18, 2008 the Fed cut rates 75 basis points again after the U.S. dollar slightly stabilized, March 21 177 a month has only 98 currencies currencies appreciated against the dollar, compared to the previous quarter, the observation period of 111 species and sub- 128 since the credit crisis greatly reduced, showing a trend of depreciation of the dollar signs of slowing. Since the current round of dollar depreciation has a large volatility characteristics, such short-term oversold bounce or a change in what is judged to be constructed at the bottom. When

round bottom dollar?

(A) depreciation of the dollar will not trigger a dollar crisis

Dollar crisis has three important characteristics: First, a substantial depreciation of the dollar before the crisis of space; second is a crisis in the U.S. have fallen sharply; Third, there is a system changes as the background. Throughout U.S. history, after the collapse of the Bretton Woods system, the only truly be called a dollar crisis from 1985 to 1987 unrest. The second oil shock in 1980, the U.S. economy had a profound impact, and former Federal Reserve Chairman Paul Volckers interest rate rises during the year to U.S. dollar exchange rate reached its peak in 1984, the U.S. dollar index rose nearly Liu Cheng in the five years to offset the potential rate increase, to Later, leaving room rates plummeted. The September 1985 meeting of finance ministers reached G5 Plaza Accord (Plaza Accord), five United States Government decided to intervene in the foreign exchange market, the U.S. dollar against major currencies down in an orderly manner, which provide the institutional crisis in the dollar factor.

According to this definition, the future dollar crisis are less likely to occur. There are three reasons: First, a significant deterioration in the exchange rate is unlikely to offset the dollars not much room for long-term devaluation. According to empirical results, from July 2007 to February 2008 the U.S. dollar has been greater degree of equilibrium exchange rate of the dollar reflects the economic slowdown in the future under the substantial weakening. Despite the gloomy short-term data continue to release the U.S. dollar will remain weak, but affected by the overshoot, the dollar depreciated further room for some deficiencies. The second is the rapid decline

dollar is unlikely. From the analysis of economic theory and historical practice, the dollar fall sharply due to a one and only one, that the U.S. current account deficit can not be maintained. Once the current account deficit, urgent need to improve for some reason, then the rapid depreciation of the dollar is looking to market the only way out immediately. Although the high proportion of GDP deficit is a dangerous external imbalances, but that does not mean it can not be maintained. Sustainability has three pillars: First, increase domestic savings rate; second major U.S. trading partners, the rapid growth of domestic demand; third Jiaogao debt rate in the United States can be maintained. If the United States more domestic savings into investment and production to meet domestic consumption needs of a greater degree, while enhancing the export capacity, and rely more on domestic demand, U.S. trade partners, consumer end product, then the United States is expected to increase net exports. According to research by economists, only the external debt reached 50%, 5% of the GDP share of current account deficit is possible to maintain (Catherine Mann, 1999). Not the same as long as the three pillars of the collapse, the dollar rapid devaluation would not occur. After the subprime mortgage crisis from the perspective of the development situation, concerns about the uncertain future the U.S. will increase precautionary savings; with China as the representative of the emerging countries continued the ongoing efforts to stimulate domestic demand; and the United States in late 2007 the external debt ratio rose to 65%, while the sub-prime crisis early in July 2007 and August, the net external holder of U.S. Treasuries and other assets sold off, but then September to December, the external holder and turned into net buyers U.S. dollar assets, to sell U.S. dollar assets has not yet formed at least the trend of large U.S. external debt sustainability might not be a fatal blow. Thus, the U.S. current account deficit after the subprime crisis are less likely to slide into unsustainable, the rapid depreciation of the dollar is not necessary.

Third, short-term institutional change less likely to occur. For now, the dollar caused the initial disturbance of the international monetary system, at least in the short term will not end to the dollar era, while the dollar depreciation of recent history is a little history, but the dollars dominant position is not substantially diminished, the United Nations report, 2007 share of global foreign exchange reserves in dollar assets, the proportion of assets still up 60.5% since 2003, dropped only 1 percentage point or so. Moreover, the international monetary system is an important part of "history from the formation of habit and convention of the international monetary order," and this element of change takes a long time. In addition to the current international monetary environment, the dollar has been brought to the European Union and other developed countries, a substantial negative impact on the exchange rate pegged to the dollar and some economies have also been the impact of institutional stability in the foreign exchange market to prevent the dollar over or preventive interventions continue to occur, less depreciation of the dollar appears from time to time public opinion, so background, similar to the "Plaza Accord" as a substantial depreciation of the dollar indulgence of institutional change is unlikely to occur.

Equilibrium exchange rate of U.S. dollar combined with the historical perspective from a comparative analysis of U.S. dollar exchange rate volatility, and now the U.S. dollar not enough to constitute a crisis in the short term the possibility of a crisis within the U.S. is relatively small.

(B) when the bottom of this round of depreciation of the dollar?

1. Bottomed out and the dollar depreciation of the dollar rebound difference

We believe that the bottom is different from the dollar depreciation of the dollar rally, the former represents the long-term trend reversal, while the latter is likely to be a short-term fluctuations. U.S. dollar short-term fluctuations caused by factors including economic data releases, major changes in national monetary policy may be, sub-loan crisis of the local repeated, frequent international capital flows.

2008 first three quarters of the existence of a series of uncertain factors may exacerbate the volatility of U.S. dollar, U.S. dollar exchange rate during the short-term rebound will occur. Relative to the expected Fed rate cut follow-up to a lesser extent, the European Central Bank and the Bank of England might cut interest rates, the Japanese central banks personnel changes are likely to be news factors, short-term rebound in the dollar, and after another short-term economic data released in the U.S. revealed a recovery if signs the U.S. dollar will be short-term support. But the short-term exchange rate to the dollar rally does not necessarily completely out of weakness. Only in the U.S. economy and the prolonged subprime mortgage crisis and get the data confirm the trend reversal, the dollar may rally only for the depreciation of the bottom evolution.

2. Bottom dollar terms

Based on the above analysis, the determinants of the dollar is the bottom dollar equilibrium exchange rate, as long as there are no sharp dollar decline in the equilibrium exchange rate, the dollar devaluation will continue to lack of space. Depreciation of the dollar is the bottom of the fundamental conditions for the delayed impact of the subprime mortgage crisis the U.S. dollar to fully show the stabilization of the equilibrium exchange rate and the elimination of the possibility of long-term deterioration.

Equilibrium exchange rate according to the determinants of dollar depreciation of the dollar bottomed out specific conditions include: First, the subprime mortgage crisis and long-term impact on U.S. economic growth is limited, it does not actually require a significant deterioration in the subprime mortgage crisis, while U.S. long-term consumption can not be a greater tendency to negative effects; Second, the U.S. terms of trade continued to improve, which to some extent as the representative of China requested the U.S. major sources of imports to keep prices stable and avoid the adverse U.S. import price index changes; Third, the United States maintenance of technological progress, which requires the sub-prime crisis on the inhibitory effect of financial innovation are eased.

3. U.S. dollar may bottom position

Our empirical study shows that from July 2007 to March 2008 the U.S. dollar there, "overshoot" component, which means that the recent currency and the dollar index hit a record low has been more close to the bottom position, but not the best of the negative factors, while the sub-prime turmoil and uncertainty in the U.S. economy to be further screening, the dollar hit a bottom in the short-term fluctuations experienced before.

2008 Nian 3 17, the dollar index hit a low of 70.698 points, the U.S. dollar against the euro to 1.5532 (USD / EUR), the yen was 95.78 (JPY / USD). The dollar index, the long-end of tribal in 65 points to 70 points more likely; dollar nominal effective exchange rate and real effective exchange rate of the bottom may be around 80; on bilateral exchange rates, the dollar-euro exchange rate may be in the bottom 1.57 Zhi 1.62 (USD / EUR) between the bottom of the dollar against the yen may be 90 to 95 (JPY / USD) between.

4. U.S. dollar may be bottoming out of time

We believe that the dollar may be time to bottom out in the third quarter of 2008, the probability is about 40% in the fourth quarter of 2008, the probability is about 30%. The reason is that the formation of such judgments, the second half of 2008, three landmark "trend reversal" will be depreciation of the dollar is likely to bottom out the conditions are met. These three trends are reversing the trend of the subprime mortgage crisis reversed the trend of European and American economic growth in contrast reversal and direction of monetary policy in Europe the trend reversed.

First, according to our previous study are expected, a series of expansionary fiscal policy and monetary policy to stimulate the U.S. economy from the effects of concentration of the third quarter of 2008 show, the credit crunch in Europe and America money market liquidity will be injected into the and confidence in recovery and to ease the subprime mortgage crisis spread to quell the trend reversal may occur.

Secondly, thematic studies on the U.S. economy showed the first quarter of 2008 and second quarter, U.S. economic growth will continue to slump, the estimated growth rate of about 0.2% and 0.6%, while the third and fourth quarters U.S. economic growth is expected to rebound to 2.1% and 2.0%; In contrast, the euro zone economic growth may be due to the negative impact of the strong euro appeared in 2008 reversed in 2007 after 2.2% growth in the fourth quarter is expected by 2008 two quarters of economic growth in the euro zone slowed to 1.7% in the preliminary, while the last two quarters of 2008 and further slowed to 1.5%. Comparing the two trends of economic growth in Europe and America in the opposite direction, the U.S. dollar against the euro will be strong support.

Finally, the United States and major countries of the monetary policy may occur in the third quarter of 2008, more contrast. The second quarter of 2008, the Federal Reserve is expected to continue to cut the benchmark interest rate to 1.75%, while inflation pressures in the context of the Federal Reserve is expected from the third quarter of 2008, slowly start raising interest rates again, raised the benchmark interest rate 2%, and continue to increase for some time. And because the risk of increased growth, the European Central Bank is likely to start in the second quarter of 2008 interest rate cut cycle, and the benchmark interest rate in the fourth quarter, down from about 3.5%; Bank of England may also drop the second quarter of 2008 interest, and in the third quarter cut the benchmark interest rate to 4.75% or so. Monetary policy will reverse the trend of a stronger U.S. dollar short-term nominal interest rates to provide the impetus. Three "trend reversal" in the third quarter of 2008 concurrent or fourth quarter will lead to long-term sustained dollar rally, the dollar is likely to be this bottom.