OMG… China is manipulating its currency.

If the world was expecting China to retaliate against the US’s recent increase in tariffs, then their move to weaken the yuan through the 7 per dollar level seems to be a move markets had not anticipated.  This is around the decade low for the yuan vs. the $USD. Washington will be quick to reiterate its claim that China is manipulating its currency.  Sounds right, but they are probably not the only ones.   As a result, global markets are selling off this morning and after a series of losses last week, we may be headed for more downside.  A hold in the S&P above its recent breakout would be encouraging but a bear trap may be playing out as volatility ticks up.  With second quarter GDP coming in at 2.1%, first half GDP was around 2.6%.   Not bad and most of July’s economic data supported continued US growth (I’m not sure the data supported last week’s cut), but as this trade war escalates and global growth slows, the race to devalue will continue.  

Who wins this battle of titans? China has more to lose as a trade war impacts their economy more than ours, but does a China hint to sell US Treasuries have more sway?

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