FXStreet (Edinburgh) – Strategist at Societe Generale Kit Juckes expects global monetary conditions to tighten in the light of the recent moves by the PBoC.
Key Quotes
“Neither the policy reaction nor the wild swings in Chinese equity prices are as important however, as the downward trend in the economy’s growth rate”.
“That the Shanghai Composite Index neither reflects or affects the Chinese economy as much as would be the case in some other countries, is by now hopefully understood”.
“But the decision to allow the Yuan to float more freely reflects to some degree the pain caused by an overvalued currency in an economy that is slowing significantly, while the apparent scale of FX intervention to manage the Yuan since, indicates how powerful a genie the PBOC has allowed (partially) out of the bottle”.
“What we’re left with, even as markets calm down, is a slowdown in the world’s second-biggest economy, a central bank that is fighting to prevent more/faster currency weakness, and a clear downtrend in global FX reserves which, all things being equal, will tighten global monetary conditions”.
(Market News Provided by FXstreet)