Strategists at DBS Bank expect that euro and the pair USD/CNY will strengthen. In their view, this will happen as China’s diversifying its foreign exchange reserves from the greenbacks in favor of the single currency.

The specialists note that Chinese authorities regard US economic and fiscal problems more serious than the European ones. China approves of euro area’s decision to aim at the long-term stability of euro, even though the austerity measures will certainly harm the region’s growth in the short term.

Stronger euro will make yuan rise helping China to fight rising inflation. In addition, DBS believes that the market prefers China to raise the reserve requirement ratio instead of lifting up the interest rates as it reassures investors that China’s economic growth pace is high enough.

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