Our political satirist turns her attention to the Far East
Who would have thought that the situation in China was such that they had to devalue the yuan not once but twice and perhaps twice is not the end of it? And what will this mean for sterling?
China has taken this action because they want to bolster their exports and combat deflation.
This action opens the door to tit for tat actions by other countries as they devalue so as to achieve the same aims. It also reduces the likelihood of increasing interest rates in the UK and the US in the expected timescales especially if they want to maintain the competitiveness of their exports.
The outcome for sterling is very difficult to predict. Against the commodity backed currencies we should see further strength for sterling, against the US dollar it is unclear, but I do wonder if against the euro we have seen our best days for a while given how key an export market the Eurozone is for the UK and that the UK economy is probably not quite as “rosy” as our politicians would like us to believe.