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Is The Yuan’s 2015 Devaluation The Wrong Template To Look At Now

Courtesy of ZeroHedge View original post here.

By Ye Xie, Bloomberg Markets Live commentator and reporter

Three things we learned last week:

1. The yuan’s relentless rise is fueling fear of a repeat of the 2015 debacle.

With the trade-weighted yuan at the strongest in five years, there’s growing concern that the currency is becoming so expensive that it will eventually crash. “This is a repeat of what got the RMB in trouble in 2014,” Robin Brooks, chief economist at the Institute of International Finance, tweeted. “Back then, RMB was quasi-pegged to the dollar, which rose sharply, dragging RMB up with it. That episode ended with the surprise “step” RMB devaluation in Aug 2015.”

The U.S. 10-year TIPS breakeven rate surged to the highest since 2006, following a shocking CPI report that exceeded all economists’ estimates. Meanwhile real yields dropped to record lows. The set-up looks similar to the one before the Taper Tantrum in 2013 when the Fed’s abrupt hawkish pivot roiled global markets. In China, while PPI rose to the highest in 26 years, the pass-through to CPI remains limited, allowing some flexibility for the PBOC to ease policy, when needed.


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