Another Chinese sell-off prompts jitters across markets

Many analysts had been betting on a rate hike when Fed officials next meet in September given sustained strength in the world’s largest economy.

In the minutes from the July meeting, it was revealed that most members of the FOMC “judged that the conditions for policy firming had not yet been achieved, but they noted conditions were approaching that point”.

It sets the scene for a showdown of hawks and doves in September, with futures markets pricing in a 38 per cent chance of a hike.

Analysts said the Fed is clearly backing off from September, which put the greenback under pressure in the short run. The Fed has made clear that it wants to raise rates this year.

Holman noted the Chinese slowdown and slump in oil price that had taken place since the FOMC’s meeting in July and how these would have affected growth in the US economy.

David Page, senior economist at AXA Investment Managers (AXA IM), said his company had revised its interest rate hike expectations from September to December, citing the same events and concerns. But they were split on whether inflation had climbed enough to justify a rate increase.

“I am not expecting the data signals to point uniformly in the same direction; I don’t need this”, Dennis Lockhart, the Federal Reserve Bank of Atlanta president, said in a speech earlier this month that echoed the argument described in the minutes of the July meeting.

Participants at the meeting generally agreed that job market conditions had improved. However, it added that “some members continued to see some downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices“. Earlier this month, China announced a devaluation of the yuan, a move that roiled global markets. Concerns over growth have also left its stock markets in the grip of extreme volatility and led global investors to rush to traditional safe havens – such as gold – to hedge against the risks of a wider ripple effect. Spot gold rose as far as $1,141.75 an ounce, its loftiest since July 17, and was up 0.4 percent at $1,138.50 by 0619 GMT. “The problem for the Fed is that there is very little sign of inflation”. It fell to a three-week low of 123.68 yen on Wednesday and last stood at 123.92 yen while the euro also rose to $1.1138, extending its rebound from this week’s low of $1.10165 touched on Tuesday.

“I’m a bit surprised by the market reacting as much as that”, said Mr Vassili Serebriakov of BNP Paribas.