Following more tariffs from the Trump administration, the Chinese have hit back by letting their currency slide, so 1 dollar now buys more than 7 yuan for the first time in 11 years. Currency manipulation had been considered politically sensitive but following another round of Trump tariffs, the Chinese appear to have lost patience.
Chinese authorities said that they would fight back against the latest decision to impose 10% tariffs on $300 billion of Chinese imports and part of that fightback is to stop the purchase of US agricultural goods. President Trump quoted on Twitter “China dropped the price of their currency to an almost historic low. It’s called “currency manipulation”. Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” The Fed has not named a country as a currency manipulator since 1994, when once again, China was the culprit, although China’s central bank hit back saying that the yuan was now at an appropriate level, more in line with China’s economic status and that the yuan had not been manipulated to offset the trade disputes.
In terms of economic data, Market PMI Composite recorded a reading of 52.6 against a consensus of 51.6 and ISM Non-Manufacturing PMI recorded a reading of 53.7 against a consensus of 55.5. Last week, the Fed scaled back earlier expectations for a 0.5% cut and instead reduced by 25 basis points only. Jerome Powell cited “global developments” for easing monetary policy although the broader US economy remains buoyant.
Sterling is now close to a 31-month low against the US dollar as markets remain fearful of a disorderly Brexit. Although even despite the recent fall of the pound, Neil Jones, head of FX sales at Mizuho Bank believes it could get much worse for the UK currency with levels of $1.10-$1.15 a possibility. Elsewhere, JP Morgan analysts are now pricing in a 25 percent chance of no deal.
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