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Foreign Exchange Markets and Korea Tensions

The foreign exchange market outlook in the world has been mixed, but relatively stable the past week. The ongoing crisis with Iran managed to not spark a rise in oil prices, and as the North Koreans seemed to flip back and forth as to whether or not they were about to test launch a ballistic missile capable of reaching the United States, Asian economies showed little change significant to the foreign exchange market. In fact, the main issue in Asia at the moment with the foreign exchange market seems to be what China will do with the yuan.

China holds vast stores of financial reserves in the U.S. dollar, and pegs the performance of its own currency, the yuan, to the American dollar. Washington would like to see China adjust its exchange rate and practices to more a more favorable position vis-?-vis U.S. imports, exports, and the overall deficit, but the Chinese ? well aware of U.S. concerns ? have shown little signs of a change that would benefit the position of the U.S. in the foreign exchange market as far as China is concerned.

Unless some sort of military confrontation between the United States and North Korea occurs, it is unlikely that Asia will witness a significant change in the foreign exchange market situation. The advantages and disadvantages are, if not quite plain to see, at least foreseeable: stability equals continued stability for China, and a change in the status quo could rattle Beijing?s cages. Thus, it is in China?s interest to see that ally Pyongyang does not take its missile-test crisis with the U.S. too far.