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Demand for safe havens up as Yuan sinks

Monetary policy easing may not be a panacea for weak global growth, say economists at the IMF.

Centtrip: Is Britain on a roll?

China’s Yuan fell to an 11-year low against the Dollar this morning, prompting Chinese state-owned banks to support the currency in the forwards market.

The Yuan’s fall, triggered by worries about an economic slowdown and combined with declines in Hong Kong stocks on the prospect of protests in the city, pushed the Australian and New Zealand Dollars lower and boosted the Yen against major crosses.

The International Monetary Fund (IMF) yesterday, 21 August warned governments against trying to weaken their currencies through monetary easing or market intervention. This could draw unwanted attention to the Yuan after the US Treasury declared China a currency manipulator as the US-Chinese trade war continued to escalate.

Other currencies traded in tight ranges ahead of Federal Reserve Chair Jerome Powell’s speech at Jackson Hole tomorrow, 23 August, which market participants will scrutinise after an inversion in the Treasuries yields curve, highlighting the risk of recession in the US.

In the meantime, expectations for another rate cut are high, and US President Donald Trump’s demands for aggressive monetary easing could put the Fed in a bind. While Powell is unlikely to give away too much over the weekend, there is a sense that Trump is doing a lot to sway monetary policy.

Last month, the US central bank cut the benchmark interest rate to 2.00–2.25 per cent for the first time in a decade. The minutes from the Federal Open Market Committee’s meeting in July showed policymakers were deeply divided over whether or not to cut the interest rate, but were united in wanting to signal they were not on a predefined path to more cuts. All eyes will be on the Fed’s next meeting scheduled for 17–18 September.

Benchmark 10-year Treasury yields gained after the minutes release, but interest rate futures are pricing in a 100 per cent probability of a rate cut in September, a 75 per cent chance of another cut in October, and a 48 per cent likelihood of an additional cut in December, the CME FedWatch Tool showed.

If Powell sounds hawkish this weekend, stocks could sell off, which would hurt the Dollar against safe-haven currencies.

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