The US Treasury has placed China, Germany, South Korea, Switzerland, Malaysia, Singapore, and Taiwan on a “monitoring list” for currency practices. The US Treasury’s report seeks to pressure the trading partners suspected of artificially holding down their exchange rates to gain a competitive advantage; however, the Treasury refrained from assigning any partner as a foreign-exchange manipulator.
Most of the foreign-exchange intervention by US trading partners in the past year was in the form of selling dollars, which aided their currencies in gaining strength. The Treasury, however, confirmed that none of its principal trading partners had manipulated the rate of exchange to gain an unfair advantage over the past four quarters. As a result, all of its noteworthy partners have been designated “monitoring list” economies, which indicates the countries warrant close attention to their macroeconomic policies and currency practices.
China, a significant US trading partner, has continually been criticized for not publishing its foreign exchange intervention reports among other concerns, raising interest among the Treasury. The criteria guiding foreign-exchange interventions are based on five parameters, and a trading partner needs to satisfy at least three criteria to be classified as a manipulator. Switzerland met one of these criteria, and the Treasury will carry out a comprehensive analysis until Switzerland meets none of the benchmarks. The Japanese yen depreciated in 2022, and the Japanese intervened to cushion the decline, prompting scrutiny from the US.
Designating a trading partner as a manipulator has no immediate consequence, but the administration is required by law to discuss with the trading partner measures to address the exchange-rate imbalances. Furthermore, after one year, penalties could be levied, such as exclusion from government contracts if the label persists.
The Treasury emphasized that it would demand greater transparency in how China conducts its exchange-rate policy, claiming that the lack of transparency surrounding China’s exchange-rate mechanics makes it an outlier among major economies and justifies it being closely monitored.
The report’s release is relevant for forex traders, and investors should keep an eye on the latest developments. Currencies’ values are impacted by a variety of factors such as inflation, interest rates, and trade policies. Traders could take advantage of these developments to make informed investment decisions, especially in a market as volatile as the forex market.
In conclusion, the US Treasury’s “monitoring list” designates China, Germany, South Korea, Malaysia, Singapore, Switzerland, and Taiwan as economies that to warrant close scrutiny of their macroeconomic policies and currency practices by the US. Although none of its significant trading partners has been labeled as a manipulator, the Treasury requires greater transparency in how China conducts its exchange-rate policies. As a forex trader, it is essential to monitor the developments surrounding currency manipulation and foreign exchange interventions as they could impact currency rates and exchange values.