FX Strategy Weekly -
FX Special: The US currency bill and implications for the RMB
(total 8 pages)

we examine the details and developments surrounding the proposed US legislation and
consider what they mean for the Chinese yuan. At this stage, there remains
much uncertainty as to whether the bill will eventually be signed into law.
China has retaliated by pushing spot USD/CNY fixes higher, although we are
doubtful that this trend can be sustained for longer periods,. The risk of tit-for-tat
trade protectionism is likely greater.

The US Senate has this week passed the "Currency
Exchange Rate Oversight Reform Act of 2011", or what is
commonly known as the currency bill. Under the
proposed legislation, the US government will be allowed
to penalize trade partners who are deemed to be
deliberately holding down the value of their currencies to
gain advantage in international trade.