DAILY FX WRAP – The PBoC remained in the spotlight today as FX markets were once again impacted by the central bank’s policy decision to weaken the CNY against the USD. For the second day in the row, the central bank weakened its CNY fix dramatically (CNY mid-point at 6.3306 vs. last close. 6.3231, Prev. mid-point 6.2298) to see the CNY at its lowest level since October 2012. As such, softness has been seen throughout emerging markets and Asian currencies, with USD/IDR and USD/MYR both reaching their weakest level against the USD since 1998, while antipodean currencies also weakened as AUD/USD broke below the 0.7400 handle.
CNY weakness also bolstered EUR, which strengthened against USD by around 150 pips today, in a continuation of yesterday’s trend of a reversal of a substantial EUR/CNY short carry trade. The USD ends the day firmly in the red as the greenback is weighed on by EUR, while also seeing outflows due to strength in T-Notes dragging yields lower. As well as this, the fact that the Chinese have weakened their currency has led some to believe the Fed may be forced to delay or slow their planned rate lift-off, while comments from Fed’s Dudley suggesting he hopes the FOMC will be able to increase interest rates in `the near future` failed to bolster optimism and the Fed’s key indicator of the labor market. JOLTS job openings missed on expectations (5249 vs. exp. 5350).
Looking ahead, participants continue to keep an eye on the third Greek bailout package, which is expected to pass through Greek parliament, while tomorrow’s highlights in terms of data include the final reading of German CPI as well as US retail sales, import price index, weekly jobs numbers and business inventories.