http://www.forbes.com/markets/2006/11/10/zhou-yuan-update-markets-currency-cx_jc_rs_1110zhou.htmlDollar Hit By Chinese Comments
These days, the currency markets turn to Chinese central bank governor, Zhou Xiaochuan, as much as Federal Reserve Chairman Ben Bernanke, for clues about the future of the dollar.
An apparently off-the-cuff comment from Zhou late on Thursday set off a round of selling pressure against the dollar. The Chinese central bank chief was quoted as saying that his institution has plans to diversify its assets into “many instruments,” presumably moving away from the dollar.
China has never revealed the exact composition of its foreign currency reserves, but market speculation suggests at least 70% is in dollars. With Chinese reserves having recently topped $1 trillion, a move away from the dollar could have significant implications.
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Whatever Zhou’s intentions, the general outlook is for continued yuan appreciation. On Friday, Goldman Sachs revised its forecast for the yuan-dollar relationship, forecasting a 6.1% rise in the Chinese currency over the next 12 months. That would take the dollar down to 7.41 yuan.
"Diversification is inevitable," said Laidi.
The only questions are how and when.
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