August 17: Yuan Deval Incoming
August 19: Won Enters Crash Zone
Go back to 2018: Potential Dollar Target Rises as China Refuses New Plaza Accord. Back then I was looking for a deflationary dollar rise, but it was arrested by the Fed bailing on policy normalization. Fast forward four years and here we are again with the dollar already approaching the post-Plaza high. The news in 2018 was China emphatically explaining that it learned from 1980s Japan. It will not accept a solution that involves a deflationary collapse triggered by a soaring yuan as part of a dollar devaluation package. No new Plaza Accord. What's happening today is a Stealth Plaza Accord with the yuan rising along with the U.S. dollar amid a self-inflicted recession via zero-covid policy. If/when China decides it's had enough deflation, it will let the yuan find a new market level (a level that the PBoC can defend with reserves). That will trigger mass depreciation in export currencies, emerging market currencies, and given the state of global affairs, possibly the euro and yen as well.
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