The Daily Update - Renminbi strength / Davos

Overnight the Renminbi extended its rally against the US dollar with the onshore currency, CNY, fixing at 6.3724, the strongest level since the 13th November 2015. At time of writing the USDCNY spot is firmer still, currently trading at 6.3294. So far the Yuan has returned 3.2% this year including carry, following its 11.80% return against the US dollar last year. The dollar has been weaker against all its major trading partners following comments made by Treasury Secretary Steven Mnuchin's at the World Economic Forum (WEF) in Davos. The dollar index (DXY), an indication of the value of the dollar versus the major currencies, dipped to 88.805 at one point, its weakest since December 2014.

In Davos, the Treasury Secretary insisted that the US was open for business whilst welcoming a weaker dollar, believing that it would benefit the US economy. ‘Obviously a weaker dollar is good for us as it relates to trade and opportunities’ and that short term the value of the greenback was ‘not a concern of ours at all’ He went on to add ‘Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency. What's happening in the U.S. is a reflection of programs being put in place. As we look at U.S. growth, it continues to look quite good and is a very attractive place to invest’.

We also heard from U.S. Commerce Secretary Wilbur Ross, who following the decision to impose trade tariffs on solar panels and washing machines earlier this week, hinted that the US was ready to enter into trade wars. ‘There have always been trade wars. The difference now is U.S. troops are now coming to the ramparts.’ Later in the week Trump is expected to speak, the first American President to do so in 18 years, where he is also expected again to promote his ‘America First’ policy.

Also, later today we have the ECB's policy setting meeting as commentators and markets look for any signs that the central bank is worried about the rapidly appreciating euro. With the EU economy moving forward President Mario Draghi could look to curb the Euro’s strength after previous warnings that the currency is ‘very important’ to growth and inflation, adding that ‘volatility needs to be avoided’.