Highway to the Danger Zone: Will China Abandon Stealth Plaza?

I'm back.

August 17: Yuan Deval Incoming

August 19: Won Enters Crash Zone

The currency charts all say the same thing: King Dollar is free to run. The wildcard for me is the yen. It was the Turbo Dollar going back to 2008 because of carry trade reversals. Now the yen is behaving more like the euro, leaving King Dollar alone to absorb currency depreciation. The final domino is the yuan. China is starting to look like Japan in the late 1980s because it is being pulled higher by its dirty-peg to the U.S. dollar.

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.