The big news on Tuesday is China’s move to devalue the yuan overnight.
It’s a modest move, all things considered, but it’s revealing with regard to how the Chinese government sees the economic situation in China.
Namely, by shifting the midpoint of its peg against the US dollar, China appears to be admitting that it must take measures to stabilise its flagging economy.
Of course, in the context of the some of the more extreme devaluations we’ve seen throughout financial history, this move isn’t much.
But even so, this decision has traders on the floor of the New York Stock Exchange asking 2 main questions, according to the NYSE’s Rich Barry:
- Will China’s move ignite a currency war?
- Will this have any impact on the timing of the Fed’s expected rate hike?
The Fed, for its part, hasn’t made much reference to China in recent months.
Additionally, the 2% devaluation of a still-pegged currency doesn’t quite seem like the start of a war.
But even so: folks on the NYSE floor think these are the questions that need answers.
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