Euro, yuan, yawn
We note that the current account deficit in the Eurozone has reached uncomfortable levels. WSJ:
The yuan has risen 6.5% against the dollar this year, but it has fallen at an annualized rate of 10% against the euro in the same period. That has alarmed a number of European governments. The EU is China’s largest trading partner, and member countries are increasingly upset at Europe’s growing trade deficit with Beijing. In the first eight months of this year, it was almost $150 billion, up from $117 billion in the same period of 2006.
Chinese Premier Wen Jiabao said the dollar’s weakness was the main reason for the euro’s strength against the yuan. “The exchange rate of the yuan against the euro is decided by the exchange rate between the yuan and the dollar, as well as the euro against the dollar,” Mr. Wen said. “The large depreciation of the dollar has been the main cause (for the euro’s strength against yuan),” said Mr. Wen
The WSJ noted: “Chinese and European Union leaders Wednesday agreed that trade imbalances between the two sides were unsustainable, but wrapped up talks without finding common ground on the issue of the euro’s rise against the yuan.” But everyone had a nice trip, and the food was good.
UPDATE
Meanwhile, back at home, via FT:
“The eurozone is staring at the stark prospect of rising stagflation risks right now,” said David Brown, chief European economist at Bear Stearns. “Inflation has jumped to 3 per cent, while economic confidence has slumped to a 20-month low. This poses a huge policy dilemma for the European Central Bank. ”
Meanwhile, the governor of the Bank of England warned that the UK economy faced an “uncomfortable” few months, with inflation remaining a serious threat, despite data showing a steep fall in house prices.
“(Next) Thursday’s interest rate decision by the Bank of England is an extremely tight call as the monetary policy committee juggles with a slowing economy and current rising inflationary pressures,” said Howard Archer, chief economist at Global Insight.