oncerns regarding an escalation in the US-China trade war has rattled the markets in the past few trading sessions, causing investors to flock to the safe-havens and away from the Chinese yuan. Fears that this uncertainty was already having a damaging impact on Asia’s largest economy were allayed after the country’s export data came in at a better-than-expected 3.3% year-on-year in July versus the 2% consensus.

There were also signs that the People’s Bank of China was ready to step in to protect CNY, setting its official midpoint for the currency at a stronger level than the market had anticipated. The yuan has experienced a torrid time since President Trump’s latest tariff announcement, falling below the 7 level against the US dollar this week for the first time in a decade.

While we still remain of the opinion that common sense will prevail and a deal will be done at some point, we are pushing back our timing for when this will be the case. Regardless, investors continue to fear the worst. Additional losses for CNY in the short term now look highly likely, with the safe-haven Japanese yen set to continue to benefit.

German industrial production falls most in a decade

Aside from the news out of China, headlines out of the other major economic areas continues to be pretty few and far between amid the typically quiet August trading.

Sterling spent another day fairly range bound against the US dollar, despite growing concerns that the UK could be heading towards a ‘no deal’ Brexit. A Reuters poll yesterday suggested that economists were increasingly fearful regarding the possibility, with the average likelihood among those polled now standing at 35% versus the previous 30%.

Meanwhile, industrial production data out of Germany was fairly horrendous yesterday, adding to concerns that the Eurozone economy was set for a prolonged slowdown this year. Industrial activity fell by 5.2% year-on-year, its largest decline since the aftermath of the financial crisis. Such soft data continues to support our view that the European Central Bank will take measures to support the currency bloc in September by following in the footsteps of the Federal Reserve in cutting interest rates.