For the first time, FX traders are grappling with wilder swings from China than Europe.
As Bloomberg notes, the offshore yuan has been more volatile than the euro all month after first overtaking the shared currency in July, according to 30-day realized data. And while euro uncertainty remains relatively bracketed between 6 and 8 for the last two years, yuan volatility has soared from 2 to almost 9 – the highest since 2015’s devaluation.
The narrow spread (lower pane) shows China is moving to a more “flexible arrangement” when it comes to managing its currency, Bank of America analysts wrote in a note, predicting the yuan will weaken more this year.
For now it appears the temporary respite from Yuan’s freefall, that ‘mysteriously’ occurred right before the US-China trade talks, has begun to lose momentum.
But while Yuan has become increasingly volatile, the realized volatility of gold (when priced in yuan) has collapsed to record lows…
Perhaps supporting the idea that the Chinese care more about the ‘stability’ of the yuan relative to gold then to the arbitrary US dollar fiat money.
So is China losing control? Or is this just as they planned?
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Author: Tyler Durden