China's devaluation raises currency war fear as Greece strikes deal (WORLD WIDE STOCK MARKET CRASH)

Reuters ^ | Aug 11, 2015 | Nigel Stephenson

[expat_panama]

China's shock 2 percent devaluation of the yuan on Tuesday pushed the dollar higher and raised the prospect of a new round of currency wars, just as Greece reached a new deal to contain its debt crisis.

Stocks fell in Asia and Europe as investors worried about the implications of a move designed to support China's slowing economy and exports.

The stronger dollar hit commodity prices, driving crude oil down after Monday's hefty gains.

Weaker stocks lifted top-rated bonds, with yields on euro zone debt also falling on the Greek deal, struck nine days before Athens is due to repay 3.2 billion euros to the European Central Bank.

China's move, which the central bank described as a "one-off depreciation" based on a new way of managing the exchange rate that better reflected market forces, triggered the yuan's biggest fall since 1994, pushing it to its lowest level against the dollar CNY=CFXS in almost three years.

The Australian dollar AUD=D4, often used as a liquid proxy for the yuan, fell 1.1 percent to $0.7324 as the U.S. dollar rose 0.4 percent against a basket of currencies .DXY before paring gains.

In Asia, the Singapore dollar SGD=D3 hit a five-year low while the Malaysian ringgit MYR= and the Indonesian rupiah IDR= hit lows not seen since the Asian financial crisis 17 years ago. The Japanese yen JPY= hit a two-month low of 125.08 to the U.S. dollar.

The euro EUR=, buoyed by the Greece deal, rose 0.1 percent to $1.1022.

U.S. reaction will be crucial. Washington has for years pressed Beijing to free up the exchange rate to allow the yuan to strengthen, reflecting the growth in the world's second-largest economy.

Today, China's economy is slowing and the new exchange rate mechanism gives markets greater ability to push the yuan lower...

[expat_panama]

On top of this, there are still pundits and FR posters who insist that the dollars losing its value...

[ShadowAce]

It is losing its value. That’s what inflation is.

[4rcane]

USD is being diluted right now. Imagine lots of water being created. In the mean time, lots of countries around the world and soaking up this water. This temporarily create an illusion that USD isn’t diluted. Its an ILLUSION and will not end well

[expat_panama]

Wake up everyone!!!   We thot yesterday's leap would solve everything but stock gains were in falling volume and right now the peanut butter's hitting the outboard motor propeller.  Futures: indexes -0.37%, metals -0.78%.  Announcements that may or may not matter: Productivity, Unit Labor Costs, and Wholesale Inventories.  Ah, someone plse check out this stuff too & pse let me know ur take:

There Is a Downside To ETF Investing - Simon Constable, Wall Street Journal study pdf

The 'Money-Empathy Gap' Is The Real Reason Why Washington Is Out Of Touc

[Lurkina.n.Learnin]

Won’t this strengthen the dollar?

[expat_panama]

Right, we know the dollar’s losing it’s value because we feeel it and that’s why it’s been devalued even tho the dollar’s soaring on intl markets.

Feelings, ya can’t beat ‘em!

[ShadowAce]

Who said anything about "feelings?"

Do you deny that the dollar does not buy as much today as it did 5 years ago? 2 years ago?

Inflation is real, whether you want to admit to it or not. The dollar (and every other form of currency) is losing its value.

[expat_panama]

Won’t this strengthen the dollar?

From the article: "the U.S. dollar rose 0.4 percent against a basket of currencies ."   Personally I can't see this ever acknowledged by the "dollar's-worthless" crowd.

[1010RD]

The first article is the typical academics spend time/money to discover what every market-oriented observer has known for a long time type story. Perhaps Krugman can write a new article now on how new products cause disruption. I cannot bring myself to click through and read the other story after that early morning numbing.

[freedomfiter2]

Rising against a basket of currencies isn’t the same as rising against things people buy. It could be that the dollar is just losing value more slowly than the others.

[1010RD]

So my dollar goes further in Europe, Australia and etc. and that’s proof that my dollar buys less?

Don’t get me wrong. I’m not a fan of the bailouts or ZIRP, but I’m not seeing dollar inflation in this story.

[expat_panama]

the dollar does not buy as much today as it did 5 years ago? 2 years ago?

As much of what? Five years ago dollars bought gold for $1,231/oz. and two years ago at $1,426/oz.  This morning it's at $1,115.  Whether I "deny" anything or you ignore anything here makes no difference.  What we're talking about here is real life market prices.

[ShadowAce]

Ahh--you choose one item that supports your beloved belief and base your whole argument on that.

OK. Have fun with it. Most of it is going away next month.

[MeneMeneTekelUpharsin]

Well, well...

[Rich21IE]

The “dollar”is rising in value in relationship to other currencies. So for example, the rise of dollar relational value combined with oversupply has caused the price per barrel of oil to fall. US goods exported abroad cost foreigners more to them thus reducing US Corporate profits from overseas sales. As the Yuan is devalued, Corporations, banks, etc. will rush to sell their Yuan holdings and in doing so will doubtless buy dollars and that’s because the US Dollar is seen as the safe haven currency. That will push up the US Dollar relational value vs. other currencies.

Long story, short, notwithstanding the fact that “goods” prices seem to be rising in the US, meaning it costs more, particularly for food, the truth is that the US economy has been walking the razors edge between inflation and Deflation and a rising relational value of the Dollar is a harbinger of a fall off that razors edge into Deflation. Worse, against this backdrop, Yellen is talking about raising interest rates which will make dollars even more dear.

I expect that this stock market will decline and Oil will make new lows for this cycle.

[Ghost of SVR4]

The strength of the “dollar” is fairly useless. We let the politicians raise the debt ceiling time and time again and find ourselves 18.3 Trillion in debt. Interest rates cannot be raised or we will not be able to service the interest on our beloved debt which trickles down to our savings not making sqaut for us. The dollar year over year is losing value, its just losing it at a slower pace compared to other currencies.

[matrix123]

This move by China is to spur economic growth after the lowering interest still didn’t achieve it. This action resulted in an appreciation of the dollar. According to an economist, the devaluation increases the chance of the yuan being included in the IMF’s Special Drawing Rights (SDR) basket as China’s goal is to internationalize the yuan in hope of it challenging the dollar for world reserve status.

[matrix123]

A rise in the dollar over China’s action doesn’t mean that the dollar overall is not loosing it values as the dollar is expected to appreciate as other nations are expected also to devalue their currencies against the dollar in reaction China’s action.

[webstersII]

“OK. Have fun with it. Most of it is going away next month.,”

I wouldn’t bet the farm on that. The US is rapidly becoming the cleanest dirty shirt. That means, along with the strengthening dollar, everyone will buy dollar-denominated assets. This will further strengthen the dollar and US markets for another year or maybe a bit longer. After that, watch out.

[mad_as_he$$]

With the old way stuff worked the dollar should be losing value. But the “old’ way is clearly broken.