Deflation In China Changes The Pattern Of Market Strategy, What Happens To The Financial Market?

<p>&nbsp;The US Dollar remained in its bearish position on Wednesday after data showed that China's economy slipped into deflation last month, raising the possibility that the government will implement additional stimulus measures and encourage investors to invest in riskier assets.</p><p><br /></p><p>Dollar selling by Chinese state-owned banks helped the yuan strengthen from a one-month low. China's central bank's stronger-than-expected exchange rate of 7.1588 per dollar before the open showed its discomfort with the yuan's recent depreciation.</p><p><br /></p><p>The US dollar index, which measures the US currency against six other currencies, fell 0.1%, paring some of Tuesday's 0.47% rise.</p><p><br /></p><p>The euro strengthened 0.2% to $1.0978, while the pound sterling fell 0.1% to $1.274. European markets got some relief after equities slipped the previous day as the Italian administration announced a 40% tax on banks. The finance ministry later eased its stance, but the initial decision had a 3.5% impact on the shares of major banks in the European zone.</p><p><br /></p><p>Data on Wednesday showed that Chinese consumer prices fell for the first time in more than two years in July. It indirectly increased interest in the US dollar as a safe haven, the figures reinforce the view among some investors that the Chinese administration may take steps to support the economy with monetary stimulus.</p><p><br /></p><p>"There have been no signs of immediate support" for China's economy from the authorities, although there has been "some protest against the recent dollar-yuan rally" implicit in the yuan's strong valuation, said Ray Attrill, chief strategy officer at National Australia Bank.</p><p><br /></p><p>With that, the weakness of the US dollar may not last long, according to Ricardo Evangelista, an analyst at ActivTrades."China's inflation data showed that consumer prices were almost unchanged in July, emphasizing that the world's second largest economy is stalling and may enter in deflation," he said.</p><p><br /></p><p>US inflation data is scheduled to be released on Thursday and has a big impact on markets hungry for clues about moves from the Federal Reserve.</p><p><br /></p><p>There was a more dovish signal from Fed officials yesterday, with Philadelphia Federal Reserve President Patrick Harker indicating that interest rates were high enough, echoing the views of Atlanta Federal Reserve President Raphael Bostic. But the signals have not been entirely uniform, with Federal Reserve Michelle Bowman saying on Monday that further hikes are likely.</p>