China signals it might unpeg the Yuan from US dollar

China may be laying the groundwork for untying the yuan from the value of the US dollar.

An editorial posted to the People’s Bank of China's website on Friday argued it made more sense to measure the value of the yuan versus that of a basket of currencies instead of just the US dollar's, The Wall Street Journal reported.

The country’s foreign exchange system was thus set to start calculating a yuan exchange rate index on Friday to provide a reference against just such a basket, the PBoC said.

Will the news affect the US Federal Reserve's policy decision next week? A strategist from UBS speaking on Bloomberg TV said you would need a "big" market dislocation to affect the result of that meeting, of about -8% in the case of the stockmarket.

As of 14:48 front month Brent crude futures were lower by 2.397% to $38.80 per barrel in ICE trading.

The S&P 500 was sent immediately lower and was on track for its worst week in a month, with energy and materials pacing losses and with all the sector gauges in the red.

The yield on the benchmark 10-year US Treasury note was eight basis points lower to 2.16%.

According to CME data the odds of a 25 basis point rate hike at the 15-16 December FOMC meeting was at 81.4% as of 15:05 versus approximately 83% before the headlines broke.

"Because of the link to the strengthening dollar, the renminbi has appreciated significantly in trade-weighted terms. Yet any sustained weakness in the renminbi relative to the dollar tends to be interpreted as “devaluation” and trigger market concerns. The timing of this announcement is significant, on the cusp tightening by the Fed, which could feed further dollar strength.

"If the renminbi does continue to weaken, the key point is that this should not automatically be interpreted as devaluation or even depreciation if it is happening against a backdrop of dollar strength," Capital Economics's chief china economist said in a research report sent to clients.