China surprises markets by devaluing the Yuan

Enrique Díaz-Álvarez11/Aug/2015Currency Updates


The Pound dipped during early morning trading against the US Dollar amid lingering doubts from last week that the Bank of England would be delaying an interest rate hike in the UK following a rather dovish set of minutes. However, Sterling recovered strongly during the day against the Greenback to finish 0.5% higher.

The week began yesterday with little economic data to report, other than the release of the Organisation for Economic Co-operation and Development’s monthly leading indicator. The index, which is designed to flag turning points in the international economy, suggested that growth in the UK economy is easing to around long-term trends. Britain’s reading slipped to 99.8 in June, having dipped below the benchmark long term average of 100 in May to 99.9.

Today will be another quiet session in the UK as far as announcements is concerned, with little in the way of economic indicator data releases. Attention among traders this week will be solely on Wednesday’s labour report, including the much scrutinised average earnings data.


The Euro rallied yesterday afternoon following a temporary blip to end the London session 0.3% higher and close to its strongest position against the US Dollar this month.

Investor confidence in the Eurozone economy took an unexpected dip when announced by Sentix yesterday. The closely watched monthly survey, which shows market opinion about the current economic situation and future expectations, fell from 18.5 to 18.4 after traders had expected an increase to what would have been a multi-year high. According to Sentix the decline in the index was mainly attributed to the sub-index of investor expectations for economic growth in Europe over the next six months. Recent weak industrial production and retail sales data suggests that the Eurozone economy is unlikely to have achieved even a modest growth rate of 2% in the second quarter of the year.

Today looks set to be a relatively busy morning’s trading in the Eurozone economy. The latest consumer prices in Italy at 9am will be followed by the monthly ZEW economic sentiment surveys for August for Germany and the wider Eurozone area. The ECB meeting accounts on Thursday will be in focus this week, as will inflation and growth data on Friday morning, all of which are likely to cause volatility in the Euro this week.


A disappointing trading session for the US Dollar saw the currency end 0.25% down versus its major peers.

Economic data yesterday was few and far between in the US. The latest labor market conditions survey, an index measuring 19 labour market indicators, remained little changed according to the Federal Reserve. The index printed at 1.1, while the previous month’s figure was revised upwards from 0.8 to 1.4.

Investors in the US payed more attention to a couple of speeches from Federal Reserve members Fischer and Lockhart yesterday, both of whom are FOMC voting members. There were some positive words on the US economy from Fed Vice Chairman Stanley Fischer, who claimed that low interest rates had helped US employment, which was soon to achieve full employment. Fischer also stated he saw inflation as “very low”, although only temporarily low due to an expected stabilisation in the price of oil and raw materials. Meanwhile, speaking at an event at the Atlanta Fed, policymaker member Dennis Lockhart echoed comments from Fischer, again suggesting that the US jobless rate was just above the level of full employment.

Retail sales on Thursday will be the main focal point of the week in the US economy this week, as investors look to gain further clues as to the likelihood of a September interest rate hike by the Federal Reserve. In the meantime, today we’ll see a handful of second-tier announcements, namely the latest nonfarm productivity and unit labour costs from the Bureau of Labor Statistics at 1.30pm BST.

Rest of the World

The People’s Bank of China surprised markets by devaluing its Yuan to the lowest rate against the US Dollar in almost three years. The central bank made a “one-off” depreciation by moving its reference rate 1.9%. This comes in the wake of a string of weak data, namely a sharp fall in exports, which has driven growth to its lowest rate in six years. The move triggered the Yuan’s biggest one-day loss since China unified official and market exchange rates in January 1994.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.