“Panda-monium” greets third yuan devaluation (+ video)

This week we have seen huge volatility and uncertainty in the Chinese yuan as the People’s Bank of China (PBOC) has devalued it by large increments at consecutive daily fixings against the US dollar.

All eyes will be on how the Chinese government is planning to manage its foreign exchange interventions as it attempts to reform policy towards a floating exchange rate. Some analysts believe that this weeks’ moves are a big push towards reform.  

Deputy Governor Yi Gang brought some reassurance to the markets by suggesting that any move towards a floating exchange rate will be a gradual process, however there is a school of thought that the PBOC is planning a 10% devaluation in the short-term. The repercussions of this weeks’ yuan weakening have been felt across the currency markets – especially by Asian currencies. The US dollar has also lost ground as the uncertainty and evident slowdown in China could slow the momentum towards a US rate increase and push it back to 2016.  

Poor employment figures hurt Sterling

The pound had a bad day at the office yesterday, following softer UK unemployment data that confirmed that unemployment rose by 25,000 in the three months to June. In addition average earnings were distinctly average after recent signs that earnings were set to move higher. The pound fell on the news, which isn’t surprising given that jobs growth and earnings growth are a key driver for the Bank of England to consider raising interest rates.

For today, the most important data release will be US retail sales. Retail sales have been pretty miserable recently and we keep hearing that it will improve, so if it does this could spark the US dollar into life.

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