Who's most afraid of a weaker dollar?

The slump in the dollar is encouraging speculation that the ECB and the Bank of Japan will soon be ready to intervene in the markets to cap the strength of their own currencies. However, while the case for Japanese intervention is the stronger of the two, we do not expect either bank to act in the near future. Instead, the central banks with most to worry about are those whose currencies are pegged to the dollar and therefore excessively weak. This group includes many Gulf countries - where one-off revaluations against the dollar are looking increasingly attractive - and China - where the authorities are likely to allow the pace of the renminbi’s appreciation against the dollar to pick up further.