“What is of interest is how the U.S. will react to this move,” Nour Al-Hammoury, chief market strategist of ADS Securities said, according to MarketWatch. “It will almost certainly cause [Fed Chairwoman] Janet Yellen and the Fed more problems and could possibly kill off the September rate hike, as any further gains by the U.S. dollar could cause more problems for the U.S. economy.
“It is clear that the ‘currency war’ is back, which will make the next few weeks very interesting.”
China devalued the yuan by 1.9 percent Tuesday. Its central bank said it was a one-time drop in a bid to allow market forces to drive its currency.
The move is expected to negatively impact U.S. exports.
And analysts are already speculating about what effect the move will have the U.S. economy.
“The question now is whether other central banks will follow suit and devalue their own currencies in some way in an attempt to ring-fence their own export markets, something that could further harm U.S. companies,” Craig Erlam, senior market analyst with Oanda said, according to MarketWatch. “They are already facing a battle to compete as a result of the strong dollar, which was likely to be further hampered by a rate hike from the Fed when it raised rates.”
China’s central bank devalued its currency Tuesday, a move that could delay a Fed interest rate hike, according to economists.