Asian Session – Majors little changed as yuan drops but Wall Street recovers
March 21, 2014 7:32 am
The key focus of the market during the Asian session was the continued drop in the value of the Chinese yuan, but as risk assets had regained favor overnight, the impact was muted.
The Chinese yuan fell to a 13-month low earlier in the session at 6.2370 against the US dollar although it managed to bounce back to 6.2270. Before this week, the People’s Bank of China had decided to widen the trading band of the yuan to plus or minus 2% around the midpoint, which was set at 6.1475. Under the old 1% band, the yuan would not have been able to move past 6.2090. For the week the yuan was losing around 1.2% and it was the biggest weekly loss for the Chinese currency on record.
A drop in the yuan is usually bad news for risk assets and for the rest of the global economy as it makes Chinese exports more competitive and imports into China more expensive. However, the size of the move has not been excessive so far. Indeed, one of the reasons behind the recent volatility is to make the currency more flexible, freely traded and market-driven in order to perhaps make it freely convertible in the future. Adverse moves also hit speculators who think a strengthening yuan is a one-way bet. The other reason is that weakness in the currency reflects some worse-than-expected economic numbers out of China in recent weeks. The yuan has lost around 3% year-to-date but there is speculation it has not yet hit bottom.
Major pairs were pinned with the euro trading at 1.3785 against the dollar, the dollar around 102.40 yen and cable around the 1.65 level.
In other news, a decent Philly Fed manufacturing business survey and a reassessment of Janet Yellen’s comments on Wednesday helped risk assets such as stocks to rebound. Specifically, a number of commentators claimed that Yellen made a rookie mistake and that she did not intend to signal higher rates would come earlier-than-expected. This point was expected to clear up somewhat today because as many as four Fed board members were due to give speeches later on.
Aside from the Fed speakers, the economic calendar for the rest of the day was light with only Eurozone current account for January and consumer confidence for March expected.
The key focus of the market during the Asian session was the continued drop in the value of the Chinese yuan, but as risk assets had regained favor overnight, the impact was muted.
The Chinese yuan fell to a 13-month low earlier in the session at 6.2370 against the US dollar although it managed to bounce back to 6.2270. Before this week, the People’s Bank of China had decided to widen the trading band of the yuan to plus or minus 2% around the midpoint, which was set at 6.1475. Under the old 1% band, the yuan would not have been able to move past 6.2090. For the week the yuan was losing around 1.2% and it was the biggest weekly loss for the Chinese currency on record.
A drop in the yuan is usually bad news for risk assets and for the rest of the global economy as it makes Chinese exports more competitive and imports into China more expensive. However, the size of the move has not been excessive so far. Indeed, one of the reasons behind the recent volatility is to make the currency more flexible, freely traded and market-driven in order to perhaps make it freely convertible in the future. Adverse moves also hit speculators who think a strengthening yuan is a one-way bet. The other reason is that weakness in the currency reflects some worse-than-expected economic numbers out of China in recent weeks. The yuan has lost around 3% year-to-date but there is speculation it has not yet hit bottom.
Major pairs were pinned with the euro trading at 1.3785 against the dollar, the dollar around 102.40 yen and cable around the 1.65 level.
In other news, a decent Philly Fed manufacturing business survey and a reassessment of Janet Yellen’s comments on Wednesday helped risk assets such as stocks to rebound. Specifically, a number of commentators claimed that Yellen made a rookie mistake and that she did not intend to signal higher rates would come earlier-than-expected. This point was expected to clear up somewhat today because as many as four Fed board members were due to give speeches later on.
Aside from the Fed speakers, the economic calendar for the rest of the day was light with only Eurozone current account for January and consumer confidence for March expected.
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