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EU backs China's gradual yuan moves
(Bloomberg)
Updated: 2006-04-04 07:36
Forecasting Difficulties
Looking at U.S.-European economic relations, the commission document said it
is "unclear" whether the dollar will continue to recover or weaken against the
euro this year. While interest rates and economic growth remain in the dollar's
favor, the end of the phase of U.S. interest-rate increases could benefit the
euro, the document said.
Some Asian governments, flush with dollars in their reserves, may let their
currencies strengthen this year as an insurance policy against future crises,
said the document, prepared by the commission's economics department and dated
March 17.
Also weighing on the currency markets is the risk of a widening U.S.
current-account deficit along with increasing surpluses in Asia, the document
said. The result may be a "disorderly" realignment of the world's major
currencies.
"There remains the risk that, as imbalances continue to widen, the likelihood
of a disorderly correction increases," the document said. "Even if a disorderly
correction is the less likely scenario, it may involve very large
costs."
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