The yuan devaluation is now a big risk for markets ...Middle East

China devalued the yuan back in 2015 to respond to an economic slowdown and boost exports. That move suprised the markets and sent them into risk-off as people feared that China's economy was worse than expected. The US stock market reacted by falling more than 10% back then.

Now we are in trade war 2.0 and Trump is pursuing a more aggressive policy against China. China doesn't look like it's backing down after it responded tit-for-tat with 34% retaliatory tariffs last Friday. Trump might have decided to take a gamble and threatened an additional 50% tariffs effective tomorrow if China doesn't back off from the recent retaliation.

If China pursues that strategy, then we could see the trade war escalate a lot further and Trump won't be happy at all as he's dubbed China a currency manipulator for a long time. The markets will likely expect something worse in response and the fear and uncertainty will likely weigh on the stock market further.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

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