Dollar Still Static In April

Despite steep rises in producer’s raw material cost, the Dollar remained static last April resulting to low improvements in its exchange rates across the world. The skyrocketing of energy prices that increased the inflation rate by 0.5% controlled the Dollar’s increase.

The domino effect of these changes, according to the Bank of New York, "prompted a brief bout of dollar selling, as it reduced market fears that rising energy prices were spilling over into underlying prices and inflationary expectations".

Overall, the said shifts did not damage the Dollar big-time but instead helped it maintain the same status. The Dollar, as of May 18, 2005, traded flatly against the Yen though still lower than the Euro.
Reports of China’s currency manipulation from the U.S. Treasury department supported the Dollar’s increase for the said timeframe. Earlier to that, the Dollar increased against Asian currencies when China began expanding its foreign exchange trading system. The said expansion of China’s forex allowed eight additional currency pairs to be traded in Shanghai.

Source: Forex – US Dollar Little Changed Vs Yen, Down Vs Euro In Late Asian Trading, Forbes.com and Forex – Dollar Lower After Benign Core US CPI Data, Forbes.com

China, A Manipulator?

The U.S. Treasury Department released reports that accused China of allegedly manipulating the foreign exchange market. It, in fact, warned China to change their foreign exchange policies else they will be really tagged as a manipulator the next time the U.S. Treasury Department releases their report.

With a close watch on China’s foreign exchange policies, the U.S. Treasury Department reported to Congress that China was in malpractice by pegging its currency 40% lower than its actual value or about 8.28 Yuan to 1 Dollar. Lowering their currency rate unnaturally results to cheaper Chinese goods sold in the American market or in any foreign market accepting Chinese imports.
The U.S. Treasury Department said US producers were complaining about this unfair trade practice which, they claim, "have caused them tens of thousands of American jobs and shuttered plants in industries from textile to toy-making".

Besides this effect in the American economy alone, the U.S. Treasury Department also pinpointed the obvious effect of this "artificially-lowered currency rates" in China’s economy, global economic growth, and trading partners.

Source: Forex Violation: America Warns China, The Indian Express Newspaper Online and Forex – US Dollar Little Changed Vs Yen, Down Vs Euro In Late Asian Trading, Forbes.com

India Adjusts Forex

Currently the sixth largest in the world, India’s reserve is a record high of $142.55 billion and a mix of mostly U.S. Dollars, Sterling pounds, Euro and Yen. The current composition of India’s reserve prompted moves to adjust it to achieve the benefits from the diversification of currency risk.

The adjustment in India’s foreign exchange reserve composition makes it now dependent to developments in global forex markets and external trade patterns. According to the country’s finance minister, it is a common practice of central banks around the world to make appropriate adjustments in the currency composition of their foreign exchange reserves from time to time. Emerging central banks of Asian countries have already diversified their foreign exchange reserves and have invested their dollars in U.S. Treasuries, which, in turn, prompted the Dollar’s decline in the past.

India’s finance minister released these details in a letter addressed to their upper house of parliament after a lawmaker questioned the government’s steps to expose India to the U.S. Dollar.

Source: Govt Makes Adjustments In Forex Reserves, www.sify.com