Chinese yuan in focus while investors ignore US weather effects

 

Yuan weakens by the most since 2012 Eurozone CPI rises to 0.8% from flash estimate
German IFO strongest since June 2011. GDP remains at 0.4% in Q4 UK reported sales and US consumer confidence due throughout session

The willingness for investors to brush off recent economic wobbles in the United States as the function of poor weather continued yesterday with the S&P 500 rising to highest level on record in the US session. The bigger currency question was on the other side of the world.

Chinese yuan has spent the past week hurting investors in what has been coined ‘the most one-sided bet’ in the currency markets. Investors have been heavy betters since the managed float of the yuan that the currency would gradually increase in value; yesterday the CNY fell by the largest amount since 2012. This follows a week of falls in CNH, offshore traded yuan out of Hong Kong, and the blame has to sit with the People’s Bank of China.

CNY is managed by the central bank and is allowed a 1% trading range on a daily basis and the thought is that the recent guidance lower could be the fore-runner to a larger trading range by the PBOC. Similar movements were seen in 2012 when the band was doubled from 0.5% to 1.0%. Whether this recent move is that and not a central bank trying to protect its economy from inflows will become clear over the coming few weeks, we would think. A looser guided yuan is a natural fit for everyone however.

Yesterday’s main focus was news from Germany and the Eurozone as a whole. The continued bullishness of the German business community was in evidence again as the IFO survey of the present and future expected conditions rose. The reading of 111.3 was the fourth consecutive month of gains and the highest since June 2011 – this morning’s first revision to German GDP for Q4 showed exports rising at the highest level in 3 years. The German economy and recovery remains the strongest in Europe.

Those of us looking for a disinflationary sign from the Eurozone economy were left disappointed yesterday. The latest Eurozone inflation numbers have stymied the efforts of euro doves again with CPI rising to 0.8% from a flash estimate of 0.7% in January. You would have to think that this does damage to March policy change expectations. The euro remained demanded as a result.

Friday’s retail sales from the UK for the month of January were slightly off the mark, falling by 1.5%. Today allows us a first look at sales in February through the CBI’s reported sales number at 11am. It’s difficult to look through the impact of regional flooding on retail as a largely negative factor and a lower number this morning would not surprise us.

The US’s latest consumer confidence number is due this afternoon although the economic significance of it has dwindled somewhat in recent months given the lack of correlation it has with payrolls, consumer spending or sales numbers. We will instead focus on the Richmond Fed manufacturing number also released at 3pm, which we expect to miss estimates following yesterday’s very poor reading out of Dallas.

Have a great day.

Indicative Rates

Sell

Buy

GBPEUR 1.2104 1.2125
GBPUSD 1.6660 1.6682
EURUSD 1.3751 1.3772
GBPJPY 170.42 170.63
GBPAUD 1.8484 1.8507
GBPNZD 2.0005 2.0033
GBPCAD 1.8455 1.8478
NZDUSD 0.8320 0.8336
GBPZAR 18.043 18.072
USDZAR 10.819 10.843
GBPPLN 5.0318 5.0555
EURJPY 140.67 140.88

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Please note these rates are “interbank” rates i.e. they indicate where the market is currently trading and are not indicative of the rates offered by World First. Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time.

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