UK And US Markets Suffer Worst Day Of The Year On Currency War Concerns

The renminbi fell to its weakest level since the 2008 Global Financial Crisis

The renminbi fell to its weakest level since the 2008 Global Financial Crisis

UK and US stocks suffered their worst day of the year so far yesterday (5 August) after China devalued its currency, prompting concerns the trade war is spilling over into the currency markets.

The renminbi fell to its weakest level since the 2008 Global Financial Crisis on Monday as the prospect of a trade deal between China and the US faded, which had a knock-on effect on global markets and elicited an angry response from US President Donald Trump, who railed against China, accusing it of manipulating its currency. 

The renminbi is allowed to trade 2% on either side of a daily midpoint set by the People's Bank of China. 

The onshore exchange rate fell past RMB7 per US dollar on Monday for the first time since May 2008, falling 1.3% to finish the Asian trading day at RMB7.0324 per dollar.

Trump called the weakened currency a "major violation".

US equities consequently fell when the US markets opened with the S&P 500 plumeting 3% while the Dow Jones Industrial Average closed 2.9% lower and the Nasdaq Composite ended 3.5% down.

The FTSE 100 also saw its biggest drop this year, falling 2.5% to close at 7,223.85 as investors switched into government debt and gold, meaning the FTSE has fallen 6% in a week.

Meanwhile the VIX index, which measures future volatility expectations, surged 33% to a three-month high.

Among Asian equities the TOPIX dropped 2.9% today (6 August) before paring its losses to trade down 0.8% in afternoon trading.

The CSI 300 index of Shanghai- and Shenzhen-listed equities fell 2% while Hong Kong's Hang Seng dropped 2.6% before pulling back to a 0.7% fall.

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