China Currency Policy Supports View Dollar Will Weaken, UBS Says

By Justin Carrigan

July 16 (Bloomberg) -- China’s rising foreign-exchange reserves increase pressure on the nation to diversify its holdings away from the U.S. currency, according to UBS AG.

“Over the long-term China’s policies are clearly unsustainable and supportive of our view that the dollar will structurally weaken over 2010 and 2011,” Brian Kim, a currency strategist in Stamford, Connecticut, wrote in a note yesterday. “China may need to quietly accelerate diversification going forward, benefiting other Group of 10 currencies such as the euro, yen and Australian dollar.”

UBS said it remains “upbeat” on the dollar over the next three months.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net