Currency Note US Dollar

Yuan effects US dollar

By Smart Currency August 12th, 2015

The US dollar was pushed higher yesterday due to a surprising devaluing of the yuan by the Chinese central bank by 1.9%, its lowest rate against the dollar for almost 3 years. This affected currency markets globally and elevated the possibility of a new round of currency wars and further worries of an ever slowing Chinese economic growth. This also caused US Treasury yields to fall and fuelled speculation that the Federal Reserve policymakers may delay a US interest rate hike. The question now is whether other central banks will follow suit and devalue their own currencies in some way in an attempt to ring-fence their own export markets, something that could further harm US companies.

And now the Chinese have done it again, devaluing the yuan by 1.6% overnight. This now begs the question of will there be more and brings further doubt on increasing interest rates in the US any time soon.

In terms of US data, nonfarm productivity managed to post a small gain in the second quarter of 2015. While that gain was smaller than expected, there may be some relief here that productivity went back up. This second-quarter reading was up by 1.3%, short of the 1.6% consensus estimate from Bloomberg. Output rose by 2.8% and hours rose by 1.5%. Today’s focus will be on the Treasury budget, which reported a $95bn deficit of the federal government for July.