For the fourth time since the first quarter, the People’s Bank of China raised lending rates in the country in attempts to curb inflationary pressures of an overheated economy. The benchmark one year rate will be increased by 18 basis points to 7.02 percent tomorrow as stipulated by policy officials in a decision that was already widely expected. Although the announcement came earlier than expected, against the consensus estimate of a September hike, the market had already begun pricing in the decision as well as additional rate hikes in the short term. Incidentally, there is plenty of justification for more rate hikes as we progress throughout the year as the country’s growth rate continues to post double digit expansion which is already supporting higher consumer prices. According to the domestic statistics agency, consumer prices accelerated to a 10-year high of 5.6 percent in the month of July.

Shanghai Stocks Hit Another Record, China Yuan Drops
China’s yuan continued to depreciate against the US dollar and Euro, while making up ground against the British pound in the overnight session. Helping along the decline in the Chinese yuan looks to be further risk reduction as investors continue to clamor for safer assets, particularly the US dollar. As a result, the USDCNY fell to trade at 7.5945 in the overnight session while declining to 10.24 against he Euro. The dip in the underlying currency, interestingly, didn’t curb enthusiasm for equities. Investors continued to pickup stocks in favored benchmark companies, supporting the index higher to another record. China’s key index was able to add 87.28 points to close 1.8 percent higher for the day at 4,972.71. Leading the pack were metal producers like Yunnan Copper as well as Bank of China shares. Bank of China stock was boosted by recent regulation deeming them the only institution to allow investment outside of the country on the retail side. Incidentally, now just a handful of points below 5,000, traders will be wary of the key resistance level in the index as many have forecasted a downturn in the index circa the figure.

Hong Kong Unemployment Rate Stands Pat
Unemployment in the economy of Hong Kong remained at a low of 4.1 percent for the three months till July. The lowest since 1998, the unemployment continues to post low on exponential growth and expansion in the Hong Kong economy where companies continue to add to labor forces. Incidentally, the additions are keeping consumer confidence supported and wages on the rise. Both should continue to contribute to the overall growth of the economy, helping the Hong Kong dollar to appreciate against the US dollar in the overnight. In New York, the USDHKD trade down to 7.8113.

Singapore Shares Close Sharply Lower on Sell-Off
Singapore stocks dropped dramatically, declining 2.82 percent, as concerns continued to surface over the repercussions of the US subprime loss. As a result, the banking sector continued to lead decliners with shares in DBS Group Holdings Ltd. dropping 3.8 percent to trade at S$20.50. Ultimately, the Straits Times Index dropped 93.72 points to close at 3,228.66.

Richard Lee is a Currency Strategist at FXCM.