CHINA

China’s shock move to devalue the yuan risks opening a new front in a currency war that stretches from the euro zone to Japan as nations look to energize their economies.

The People’s Bank of China slashed the yuan’s fixing by a record 1.9 percent on Tuesday, sparking the currency’s biggest one-day loss since the official and market exchange rates were united in 1994. It triggered the steepest selloff among Asian currencies in almost seven years, led by slides in South Korea’s won and the Taiwan and Singapore dollars. The euro and the yen tumbled 18 percent against the greenback in the past 12 months as monetary policies diverged in the U.S., Europe and Japan.

“In a weak global economy, it will take a lot more than a 1.9 percent devaluation to jump-start Chinese exports,” said Stephen Roach, a senior fellow at Yale University and former Morgan Stanley non-executive chairman in Asia. “That raises the distinct possibility of a new and increasingly destabilizing skirmish in the ever-widening global currency war. The race to the bottom just became a good deal more treacherous.”

China’s devaluation shook global markets just as the currency war appeared to be losing steam in Asia, with Australia and New Zealand toning down calls for weaker rates and Japan refraining from expanding stimulus this quarter. Even with almost all major currencies losing ground against the dollar this year amid rising expectations for increased borrowing costs in the U.S., China maintained a de facto peg since March amid a push for the yuan to win reserve status at the International Monetary Fund.

“They built into the market an expectation that they were keeping the currency stable,” said Ray Farris, global head of currency strategy in Singapore at Credit Suisse Group AG. “Then all of a sudden they blinked. Because they blinked today, markets will continue to look for similar conditions in the future. If exports are falling off a cliff, then against the background of this development, markets will expect more” depreciation, he said.

A report on Saturday showed Chinese exports shrank 8.3 percent in July, compared with a Bloomberg survey’s median estimate of a 1.5 percent. The yuan’s real effective exchange rate, a measure adjusted for inflation and trade with other nations, climbed 13 percent over the last four quarters and was the highest among 32 major currencies tracked by Bank for International Settlements indexes.

The depreciation pressure on Asian currencies from China’s action should fade as the nation isn’t aiming at engineering a much weaker yuan, HSBC Holdings Plc analysts led by Paul Mackel wrote in a note. Doing so would contradict the goal of promoting greater global use of the yuan, they wrote.

More than 20 central banks from India to South Korea have loosened monetary policy this year to spur growth and fend off deflation, leaving the U.S. and possibly the U.K. as the only major economies likely to raise rates this year. The consequent dollar strength prompted Federal Reserve officials to comment on its damage to U.S. exports earlier this year, casting doubt over whether it would go ahead with tightening in 2015.

“The devaluation signals the PBOC’s eagerness to join the global currency wars,” Credit Agricole CIB strategists led by Valentin Marinov wrote in a note Tuesday. “With the competitive devaluation gaining momentum but global trade slowing, the latest yuan devaluation could be seen as likely to force other central banks to consider similar measures before long.”

A gauge of Asian currencies headed for the biggest drop since 2008 on Tuesday. Taiwan’s dollar slid to a five-year low, while Korea’s won fell to the weakest level since 2012. The yuan fell 1.8 percent to 6.3231 a dollar in Shanghai. It earlier declined 2.1 percent.

“A stable yuan had served as an anchor of some sorts for the rest of Asia,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “This is no longer the case.”

— With assistance from Kevin Hamlin in Beijing.

China’s Yuan Devaluation Is Great News for U.S. Dollar   ( hmmm ya think…..)

China’s decision to devalue the yuan is good news for dollar bulls.

China’s central bank cut the yuan’s daily-fixing rate by a record 1.9 percent Tuesday after the International Monetary Fund last week delayed a decision to endorse it as a reserve currency. The move cast doubt on the health of the world’s second-largest economy, weighing on the currencies of its trading partners and competitors. The dollar was already supported by speculation the Federal Reserve will increase interest-rates as early as next month.

“The dollar story continues to look in almost splendid isolation compared to pretty much everywhere else,” said Jeremy Stretch, a foreign-exchange strategist at Canadian Imperial Bank of Commerce in London. “It just adds to the impetus” for a currency that’s rising because “the growth story is allied to the prospect of Fed tightening upcoming.”

The greenback strengthened against most of its 16 major peers. The New Zealand, Australian, Singapore and Taiwanese dollars tumbled at least 0.7 percent, along with South Korea’s won.

While the dollar has rallied versus all of its major peers in the last 12 months, the bullishness had faded. Forecasters ratcheted back expectations for gains in the dollar after a gauge of the currency fell 1.7 percent in three months ended June 30 amid weakness in the U.S. economy that few predicted. The Bloomberg Dollar Spot Index had surged 20 percent in the previous three quarters.

The People’s Bank of China had kept the yuan broadly stable against the dollar since March to encourage greater global usage in a push for official reserve status at the IMF. China has been pushing for the yuan to join the dollar, euro, yen and pound in the basket of currencies that make up the fund’s Special Drawing Rights, or SDR.

A strong yuan had put pressure on China’s exports. The nation’s overseas shipments fell 8.3 percent from a year earlier in dollar terms in July, well below the estimate of a 1.5 percent decline in a Bloomberg survey.

“The gain by holding dollar-yuan very steady, in terms of its appeal for the SDR, is now outweighed by the need for a weaker exchange rate as part of looser monetary conditions,” said Sean Callow, a strategist at Westpac Banking Corp. in Sydney. “It adds to the appeal of the U.S. dollar heading into next month’s meeting.”

The Chinese central bank’s move on Tuesday was a one-time adjustment, it said in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing.

rate trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. “This might be the start of a broader change. That’s why the market is reacting so strongly.”

				China devalues yuan currency to three-year low – BBC New… China’s central bank devalues the yuan to its lowest rate against the US dollar in almost three years, calling it a “one-off” adjustment.
				View on www.bbc.com	Preview by Yahoo

Market-based rate

China wants to be included in the IMF’s reserve currencies basket

‘A new currency war?’

Analysis: Robert Peston, BBC economics editor

Greece reached an accord with creditors on the terms of a third bailout, paving the way for national parliaments to vote on the deal before an Aug. 20 payment falls due to the European Central Bank.

After almost two weeks of intensive talks, the four institutions representing Greece’s creditors — the ECB, the International Monetary Fund, the European Commission and the European Stability Mechanism rescue fund — agreed on measures and prior actions that will unlock some 86 billion euros ($94 billion) in funds for Greece.

The talks successfully wrapped up in the early hours of Tuesday, Finance Ministry spokesman Theodoros Mihopoulos said in a text message. Finance Minister Euclid Tsakalotos told reporters that just “one or two very small details” remain, in comments broadcast on Skai TV. An EU official confirmed a deal had been struck, asking not to be named because the talks are private and details have still to be announced.

Greece’s parliament must now pass the reform or fiscal requirements before a meeting of euro-area finance ministers tentatively scheduled for Friday. A draft of the memorandum of understanding includes 35 so-called prior actions the country must pass immediately, with more measures to follow in October, before aid can be released, Kathimerini newspaper reported, citing a copy of the draft.

Greek Prime Minister Alexis Tsipras’s government needs a quick release of about 20 billion euros to create a buffer for its banks and to make loan payments.

The Athens Stock Index rose 1.8 percent at 10:49 a.m. in Athens after increasing 2.1 percent Monday in anticipation that a deal was near. The yield on Greece’s 2.1 billion euros of 3.375 percent notes due 2017 plunged 352 basis points to 14.7 percent. That’s down from a high this year of 63.3 percent in July.

Greece Agrees to Terms With Creditors for 3rd Bailout

“One needs to look closely and then we’ll ask the Bundestag for approval when the common understanding is that this will hold for three years,” Jens Spahn, a deputy to German Finance Minister Wolfgang Schaeuble, said on ARD television. “It has to be convincing that it isn’t just about Aug. 20 and an installment payment, but really about how, together with the Greeks, we can have a lasting solution.”

People are “too pessimistic” on the likelihood of a deal for Greece succeeding, Erik Nielsen, global chief economist at UniCredit Bank AG, said in a Bloomberg Television interview.

“I don’t know if it’s going to work but I wouldn’t write it off,” Nielsen said on Monday. In any case, Greece won’t leave the euro “because they were out there looking into the abyss and decided they didn’t like it,” he said. “That is not a very big risk.”

The commitment to seek another bailout backtracks on Tsipras’s election pledges, prompting a rebellion within  his Syriza party. He has called an emergency Syriza congress for September.

Mr Tsakalotos’ comments came after all-night talks at a central Athens hotel

Analysis: Robert Peston, BBC economics editor