FxWirePro: Chinese growth concern rattles FX market

The first major day of trading in 2019 witnessed extreme moves in the foreign exchange market, especially in the yen-based pairs, triggered by concerns over Chinese economic growth. 2019 began with softer economic data from China, suggesting that the United States’ war on its deficit with China may finally be taking its toll.

China’s official manufacturing PMI declined to 49.4 in December, suggesting that the manufacturing sector had its worst contraction in almost two years. The private Caixin manufacturing PMI confirmed the slowdown with a 49.7 reading. A PMI reading below 50 suggests contraction. Both reports suggested a significant slowdown in both foreign and domestic demand. The nail on the Coffin came from iPhone manufacturer Apple, which reduced its revenue expectations for the first time in 16 years on Wednesday because of poor iPhone sales in China, an unexpected development that underscored the slowing of China’s economy and raised fears of further turmoil in global markets. According to investors, Apple’s surprise announcement was the clearest confirmation yet that the Chinese economy is in serious trouble.

As the Apple announcement hit the market, investors rushed to safe haven counters like yen, which then skyrocketed. The Japanese yen rose from 109.1 per USD to as high as 104.7 per USD, within an hour of trading on Thursday, before profit bookings pushed the index lower. The dollar also received bids as investors pushed single currency euro to as low as 1.13 against the USD and the pound dropped to 1.237 against the USD.

However, thanks to the People’s Bank of China’s intervention, yuan was stable at 6.89 per USD, down just 0.07 percent for the day.