Treasury Department report goes easy on Chinese flexibility policy for the renminbi; Breaking up [the euro zone] may not be so hard to do, says Capital Economics

Treasury will keep close surveillance over renminbi – The recent move by China to add more flexibility to the renminbi exchange rate regime was a “significant development,” the U.S. Treasury Department said in a July 8 report to Congress. However, the key issue is how much and how quickly the currency appreciates, the report said. This observation comes as no news to online forex traders. A number of factors suggest the renminbi remains undervalued, according to the Treasury report. These include China’s continuing accumulation of foreign reserves and the paltry growth of the effective exchange rate when taking into account the accelerated growth in China’s traded goods sector. The Obama administration will keep a close eye on the appreciation of the renminbi and enhance its efforts to expand U.S. export opportunities in China, Treasury Secretary Timothy Geithner said. The report was published almost two months after its originally scheduled release date, a move attributed in the forex trading community and elsewhere to the administration’s desire not to ruffle Chinese feathers before the recent G-20 meeting.

A world without the euro – A highly respected economic analysis firm has joined the ranks of those suggesting a break-up of the euro zone could have beneficial effects. News of the report has been received with particular interest among forex traders. Renewed economic growth in weaker European countries could be the previously unforeseen outcome of a break-up, Capital Economics, a London-based firm, said in a report released on July 11. Analysts have suggested that euro-zone weaklings, such as Greece, Ireland and Portugal, must resort to dramatic cost cutting measures and slashing prices in order to compete with the bigwigs like Germany. If these countries were to revert to their former national currencies they would be equipped to let the currencies depreciate as a way to make their exports less expensive, the report said. According to its website, Capital Economics is a leading worldwide independent macro economic research consultant that provides research on the U.S., Europe, Asia, Latin America and the U.K.