So much for a summer slumber. Despite the Chinese yuan fixing with just a modest revaluation last night, the stability in the yuan did little to bolster investor confidence in China during the trading session. Better than expected housing numbers in July sparked concern from the investing public that Beijing may limit its future interventions, slightly diminishing the chances of further interest rate or reserve requirement cuts. The initial weakness in equities escalated to the order book going figuratively bid-less after it was rumored there was little buying support from government agencies on the drop. After the dust settled the Shanghai Comp finished its session down 6.1%, while the offshore USDCNH is modestly softer on unassertive yuan strength.
As far as the majors go, the British pound is the stark outperformer during the overnight session, leaping past some technical hurdles and pushing higher against the greenback after inflation data for the month of July was firmer than expected. The year-over-year rate for headline inflation ticked up to 0.1% from a flat reading the month prior, with core prices also gaining nicely compared to the reading registered in June. The warmer than expected inflation reading coincides with yesterday’s comments from the Bank of England’s Forbes, who was quoted as saying keeping interest rates abnormally low risks distorting market conditions and that rates would have to begin to rise well below inflation nears the BoE’s 2% target. The pound is the best performing of the majors ahead of building permit data out of the US, with upward momentum in GBPUSD hitting its highest levels since June.
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