And a bit on the IMF's revised forecast for the US.
From Reuters, "U.S.'s Paulson praises China on currency progress":
BEIJING, April 2 (Reuters) - China has made substantial progress toward adopting a more flexible currency that will help it cope with inflation pressures from rising food prices, U.S. Treasury Secretary Henry Paulson said on Wednesday.
After a day of top-level talks with Chinese leaders including President Hu Jintao, Paulson said he felt China lacks adequate capital markets to have a fully market-based currency but that remains the ultimate objective.
"I acknowledged to President Hu the very material progress that they've made with their currency because they have a currency that more accurately reflects underlying economic fundamentals," Paulson said, adding that gives China "a very important tool" in its bid to keep food price rises in check.
In Figure 1, I've plotted the CNY/USD exchange rate in logs. The fact that the slope of the curve is getting steeper, even when logged, means that the percentage rate of CNY appreciation against the USD is accelerating.
Figure 1: Log CNY/USD exchange rate. Source: FRED II.
However, at this point, two observations are necessary. First, the USD has itself been depreciating against a broad basket of currencies (0), so in order for the CNY to be appreciating against a basket of currencies of China's trading partners, the pace of CNY/USD appreciation would have to be fairly rapid (after all, as noted by Brad Setser, the US no longer has a "strong dollar" policy). Second, in order for adjustment of trade balances to occur, real exchange rates would have to be moving.
Figure 2 depicts the nominal and real trade weighted value of the CNY, as calculated by the BIS.
Figure 2: Log nominal (blue) and real (red) trade weighted value of the CNY (broad). Source: BIS.
What Figure 2 indicates is that the nominal value of the CNY is essentially the same in March 2008 as it was in the 3rd quarter of 2005 (This observation is made by Setser as well).