Recently, China announced that it would “ relax” the exchange rate on it’s currency hoping that it would help the economy. President Obama welcomed the move, as he has been working on it since he took office.
Markets will be watching come Monday for the effects of the announcement, which was timed just before President Hu Jintao's trip to the G-20 summit in Toronto. It is a positive sign that the Chinese are willing to relax the exchange rate but the Obama administration will be working hard for even more fair trade from the Asian country.
The true test, however, will be how fast the country allows their currency to appreciate in value. Many trading partners claim that the currency is undervalued putting the country at an unfair disadvantage.
The Chinese had kept the exchange rate frozen for some time to help their frail economy, but with pressure mounting around the world the Chinese finally made the decision to relax the rate. Treasury Security Timothy Geithner applauded the move calling it an “ important step”.
However, members in Congress are not happy with the move, stating that the undervalued Chinese currency gives them an unfair advantage against the hard working American people.
When the markets open on Monday we will see if the move by the Chinese will help or hurt the market. The globally economy is in a slow recovery so every little bit will help.
Considering that the Chinese government is the largest holder of US Treasuries, keeping a good trade relationship with the Asian country is very crucial to the American economy. However, many hope that the country will work with the rest of the world to create a fair trading environment.