Surprise China Devaluation Marks Escalation of Currency War

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Top Headlines

Surprise China Devaluation Marks Escalation of Currency War – Financial Times (subscription)
Beijing has launched the latest attack in a growing currency war by devaluing its currency by almost 2% on Tuesday morning. The one-day move, done in a bid to boost failing exports, was the biggest since 1993 and may, analysts warn, be hard to reverse.


Germany’s Financial Watchdog Worried Over Scale of FX Manipulation – Wall Street Journal (subscription)
Germany’s banking watchdog is concerned about the magnitude of attempted foreign exchange manipulation at large domestic banks including Deutsche Bank and expects to conclude its investigation into possible misconduct by next year.

Momentum Chasers Dominate as Top Currency Strategy Is to Pile On – Bloomberg
Riding trends is turning out to be the best way to make money in the foreign exchange market. After a brief lull, momentum trading has stormed back to the fore this quarter by gaining 1.6%, aided by appreciation in the pound and the dollar against the Australian and New Zealand currencies, according to a Deutsche Bank measure.

Currency Trading Boosts 2015 Managed Futures Data – Profit & Loss
A strong performance in July, driven largely by currency trading, means that the Newedge CTA indices are positive for the year so far.

Should the Buy-Side Begin Central Clearing Early? – The Trade
The European Commission has effectively set the date of October 2016 for buy-side firms to become subject to mandatory central clearing, but should they begin earlier than that?

CCPs Confront Cleared Swap Basis Threat – Risk Magazine (subscription)
In theory, a price difference could emerge for any derivative that is cleared at two or more clearing houses – as recently happened for US dollar swaps at CME and LCH.Clearnet. From Japan to Mexico, other clearers explain how they are trying to avoid it.

Algorithmic Trading: The Play-at-Home Version – Wall Street journal (subscription)
DIY’s newest frontier is algorithmic trading. Spurred on by their own curiosity and coached by hobbyist groups and online courses, thousands of day-trading tinkerers are writing up their own trading software and turning it loose on the markets.

 

Regulatory News

Banks Said Poised to Win Delay of US Curbs on Overseas Swaps – Bloomberg
Wall Street banks are close to winning a further delay of a US policy that clamps down on their overseas derivatives trades.

Senate’s Warren Seeks Review of Bank Message System After Fines – Bloomberg
US Senator Elizabeth Warren wants financial regulators to examine whether a group of banks’ new messaging system can be used to circumvent compliance. The system was created by Symphony Communications with funding from 14 financial firms, including Goldman Sachs.

Hedge Funds Face Collateral Conundrum – The Trade
The challenges facing hedge funds and the movement of their collateral are set to increase for a number of reasons. Firstly, the Dodd-Frank Act in the US and the European Market Infrastructure Regulation (EMIR) are pushing more over-the-counter derivatives into centralised clearing through CCPs.

 

Company News

Markit Launches FX Trade Confirmation Service – Profit & Loss
Markit has launched a new FX trade confirmation service that matches FX option trade terms to generate legally binding trade confirmations.

Ex-Tullett E-Broker Joins Thomson Reuters – FOW (subscription)
Thomson Reuters has hired Paul Humphrey, the former head of electronic broking at Tullett Prebon, as a consultant working in the data and tech giant’s main financial business.

BlueCrest Sued in US as Libor Fallout Ensnares Hedge Fund – Bloomberg
BlueCrest Capital Management was sued by a group of investment firms over claims an employee at the hedge fund run by billionaire Michael Platt conspired with banks to rig the Swiss franc Libor rate.

(Mis)understanding FXCM’s $500 million 1H Loss and Valuation – LeapRate
Had Black Thursday occurred, say, back in mid-December, then FXCM would likely have written off (most of) the financial hurt from the entire episode in Q4, and would have begun 2015 anew with a somewhat clean accounting slate.

 

Market Savvy  

Another BRIC in the Wall
Societe Generale
The PBoC’s announcement of a ‘one-off’ 1.9% devaluation in the CNY’s reference rate against the dollar is explained as being part of a shift to a more market-determined fixing regime. That looks like a move towards a ‘managed float’ that is similar to what the majority of Asian central banks operate. However, the technical changes are less eye-catching than the small devaluation which can only increase speculation that the renminbi will now play catch-up (or catch-down) with China’s major competitors.

 

Press Releases

Golden Agri Adopts Bloomberg’s Foreign Exchange Trading Platform
Golden Agri-Resources has selected Bloomberg’s foreign exchange trading platform (FXGO) for currency hedging and risk management. The world’s second largest palm oil plantation company is part of a growing number of regional centres globally using FXGO to manage and trade risk for its businesses in Asia Pacific.

 

Industry Events