CNY depreciation on Fed policy

The PBoC moved the USDCNY fixing higher by 1.9%. The official release by the PBoC noted that the move is intended as a one-off adjustment and is one step toward liberalizing the FX market. The authorities have been actively trying to combat domestic weakness through more targeted interest rate measures and accelerated public infrastructure spending, but the revaluation is a signal that these targeted measures were proving insufficient and that a more comprehensive response was needed. Barclays states, the PBoC as responding to domestic growth concerns as well as implementing reforms ahead of any SDR review by the IMF.

We have long viewed a China "hard landing" as the main risk to the US outlook. As it concerns our outlook for the US, we concur with our China economics team and believe risks to growth in China remain skewed to the downside. 

"Analysts observes risks to growth in China remain skewed to the downside. If realized, this would likely lead to slower growth outside the US and further disinflationary pressures within the US; any Fed tightening would then be likely to occur later and/or at a slower pace than previously envisaged. We have viewed weaker growth in China as the most important external risk to the US outlook, ahead of potential spillovers from a Greek exit", according to Barclays.