PBOC weakens yuan by most in two years at daily fix

China’s central bank weakened the yuan by the biggest single daily devaluation since June 2016. While the direction of spot USD/CNH could in some way be attributed to the rampant US dollar, there is some conjecture in the market that the devaluation is part of a plan to combat the effect of the imposition of US tariffs on Chinese goods. Trump seems not impressed and continues to blast Chinese officials for “not doing enough”.

The offshore yuan has tumbled as much as 3% versus the US dollar,so far this month, and is down almost 10% since March. USD/CNH is now trading at 6.81510 after touching the highest level in just over a year.

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Trump criticizes Fed’s hawkish rate policy

For the first time in two decades a US President broke with tradition and openly criticized the country’s central bank. Trump said he was concerned about the potential impact on the US economy of rising rates and a surging dollar. Though, whilst saying he was not thrilled, he did say” I’m letting them do what they feel is best”. His comments pushed the US dollar and US yields lower, though there wasn’t much follow through during today’s Asian session.

Japan inflation nowhere near BOJ’s target

This morning’s release of Japan inflation numbers for June came in below estimate, rising 0.7% y/y, the same rate as in May, versus forecasts of a 0.8% increase. In recent months there has been some debate whether the 2% target set by the BOJ is realistic in the current environment. According to results of a Reuters corporate survey published today, two-thirds of respondents reckon inflation between 0% and 1% is “appropriate” while 27% deemed the 2% inflation target as simply unreachable. Watch out for more BOJ deliberations on this topic.

Data in the headlights

It’s a slow data session to close of the week with the only major releases the Euro-zone current account balance for May and for the UK Public Sector Borrowing and the NIESR’s 3-month rolling GDP estimate. The North American calendar is populated with Canada’s retail sales for May and inflation data for June.

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