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Brad Setser explains that China has been actively adjusting its exchange rate by implementing stronger daily fixes, which has pushed spot rates higher and led to expectations of further currency appreciation.
Setser adds that this policy shift has encouraged purchases in settlement, though he notes that China still maintains control of the nominal exchange rate and should take further measures.
Setser has recently cautioned that China’s supply growth requires sustained, large-scale exports to maintain balance, raising concerns about trade imbalances in the global market he previously discussed. Separately, he noted Japan’s efforts to defend the yen amid low rates and rising oil costs in another commentary. His observations continue to track the interventions of major Asian economies in currency management.