The Chinese Yuan has crossed ‘7’ for the first time in over a decade causing massive economic unrest on a global scale, causing stock markets and other assets to tumble. It has coincidentally caused the price of Gold, Bitcoin, and other stores of values to surge.
A Mere Coincidence?
The Federal interest rate cut, the trade war between U.S. and China, Japan and Korea, etc have all caused unrest on a macro level sending ripples across every major country in the world. The most important one is perhaps the decision by President Donald Trump escalating the U.S. China trade war which has been hanging in limbo for more than 3 months now.
Trump’s announcement to increase import tariffs caused the Chinese Yuan aka renminbi to hit and cross the psychologically important level – 7. This news had a ripple effect on important currencies across the world: the Indian Rupee has collapsed by 1.25%, Korean Won by 1.09%, Australian Dollar by 0.7%.
Apart from the currencies, there has been a noticeable drop in assets like S&P500, U.S. government bonds 10-year yield, DJI, etc and it could be linked to both, today’s decision by Trump and the Federal Chairman’ Powell’s decision of interest rate cuts. The interesting (yet most obvious) turn of events includes the increase in the price of assets like Gold, Silver, Bitcoin, etc, which are considered as “store of value” assets.
A Causal Relationship?
Maybe? Probably? Definitely.
More often than not, during times of panic and crisis, investors turn to assets that retain value irrespective of global events. The capital flows out of the country during such events, causing a domino effect, pushing the markets further down. The last time a similar incident occurred in 2015-16, there was massive capital outflow,