FLASH WARNING – China Devalues their Currency

China has instigated a dramatic currency devaluation overnight, hitting back against the Trump administration, this raises the inevitable lurch towards a superpower showdown and a lurch towards full trade war and currency war

The yuan traded through the symbolic line of seven to the dollar for the first time since the global financial crisis, with the offshore rate in Hong Kong spiking to 7.07 in moves that have stunned the markets.

What does this mean and what are the major ripple effects ?

This policy action effectively unleashes a wave of deflation across the world and further escalates the economic downturn in East Asia and much of Europe leading into in to recession.

Chinese intentions is obviously to neutralise Mr Trump’s tariffs by letting the currency fall, which does imply a much greater devaluation to come.

However and more importantly this means a coordinated yuan devaluation against the rest of the world, which effectively exports trade stress to third countries and risks pushing much of East Asia into a deeper downturn than we already experiencing.

This is certain to provoke a ferocious response from the White House.

Beijing has taken the fateful step of “weaponizing” its exchange rate.

The shock waves were felt instantly across the world through global bond markets with yields on the 10-year German Funds plummeted to – 0.53%, equity prices fell alongside commodities.

It has triggered a flight to safe-haven currencies such as the Japanese yen and the Swiss franc, and more importantly precious metals such as gold that has rallied 2.5% over night in US$ terms (+4.2% in CNY)  +16% in just the last 10 weeks (+21% in 3 months in CNY) .

As global currencies now trigger strategic devaluations against each other to support their trade policies and with the USA directly threatening to also intervene in the FX market to devalue the US$, it really is a race to the bottom.

Please be careful this has much wider repercussions over the next few years

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