It wants a gradually depreciating dollar as a means of invigorating the US export sector, and to some extent clamping down on cheap imports. The problem of course is that it cannot depreciate the dollar against the yuan, so Chinese imports not only keep coming in to the US, they are getting cheaper in European terms as the euro strengthens against the yuan too.

You hear the European governments complain about this but very little comment in the US other than an occasional article referencing the problem. However, in the US specialist press devoted to the stock market, notice is being taken of the nearly perfect inverse correlation between the falling dollar and the rising stock market. You can observe this working on an hourly basis - as the dollar drops the stock market rises, and vise versa.

This is not a recent development, though a correlation that is nearing 1.0 is recent. What it tells us is that the dollar is the linchpin to all the asset markets that are rising - gold, metals, real estate, emerging markets, oil. The weak dollar is reflecting the zero interest rates in the US, which gives rise first to no desire to hold on to it as an asset, and second every desire to borrow it and immediately buy some other asset earning more (the carry trade). The weak dollar is fostering a series of asset bubbles around the globe.

The Chinese government complained about this yesterday, and what several governments are hinting is that interest rates here should be 2.0%, not 0.0%. Bernanke says that's not going to happen (he needs to continue to give the banks free money), but we may see long term rates here pushed up if overseas governments get sick and tired of this policy and start dumping some of their Treasury holdings.

An American writes that "don't touch the dollar, but yuan...".

His agenda is here: If China and others ceased subverting currency markets, the yuan would rise at least 40 percent, other Asian currencies would appreciate too, the U.S. trade deficit would shrink dramatically, and the new demand for American goods would rocket the U.S. economy.

He says "yuan" but he has US dollar in his mind.

Another thing to note is the shift in US trade policy. Earlier Obama etc. claimed that they have no policy to shrink US trade deficit. Somehow that's no more true.

Normally a proper recession in the US reverses a trade deficit to a trade surplus.

_{--Sell Texas to China!}

I know why the dollar should be going down against the EUR and read daily posts in many places how the US dollar is getting 'beaten up' but seeing it today at 0.6682 - 0.6695 looks a lot like 2003 (minus the lows at 01/2009) plus I always look at multi-year comparisons as well. Been there, done that, what's the 'key currency' I should look at the dollar decline against?