Markets assume gradual Yuan increase

This week, Hu JinTao, Prime Minister of China, will visit the United States for the first time since he assumed power. As you probably guessed, the Yuan will be a hot topic of conversation between Chinese and American officials. It bears mentioning that American politicians continue to call for a 25% increase in the value of the Yuan, as economists feel the Yuan is undervalued. However, forex markets reflect slightly different expectations with regard to the path of the Yuan. Specifically, Yuan currency futures indicate
investors believe the Yuan will only appreciate 2.8% this year. Non-deliverable Yuan forward contracts, which serve a similar purpose, have priced in a 3.1% gain. While there remain a few analysts that believe the Yuan will rack up double digit gains against the USD this year, the majority of traders expect the Yuan to continue appreciating gradually. Reuters reports:

JP Morgan…expects the dollar to fall to 7.00 yuan by the end of this year, but admits that the market is pricing in less than a 2 percent chance of this occurring.

Read More: Currency markets bet on small yuan appreciation

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