Calm returns to markets, but some analysts ask for how long?

Risk assets found a small bid on Friday after Chinese state-controlled funds stepped into the wreckage of the country's stock markets in a bid to prop them up.

Those funds purchased equities, especially financial issues and shares of those companies with large weightings in the indices.

That saw the Shanghai Composite Index finish the Friday session higher by 1.97% at 3,186.41, although volatility was still evident.

The People’s Bank of China also set a slightly higher fixing for the yuan today, moving it up 0.02% to 6.5636.

On 6 January, China announced it would extend a ban on share selling by institutional investors. That was followed the next day by the country's market regulator's decision to suspend a controversial 'circuit breaker' on share sales.

As of 09:05 the US dollar was 0.08% weaker versus the yuan at 6.5876.

Commodity markets also got a bit of a boost, with front month Brent crude futures higher by 2.32% to $34.55 per barrel on the ICE as of 08:00.

The US dollar meanwhile was managing a bounce, helping it to recoup part of the previous day's losses against the Japanese yen and was rising 0.57% to 118.25 as of 08:18GMT.

Sterling on the other hand was still a bit of the odd man out, edging lower by 0.05% to 1.4614 in its cross against the US greenback. Nonetheless, that was still comfortably above the six-year lows of 1.4530 that it plumbed in the previous session.

"Sentiment towards the Sterling remains heavily bearish and recent reports around analysts discussing the possibility that the UK pound may be the most overvalued currency in the world have eroded investors’attraction even further," FXTM Research analyst Lukman Otunuga said in a research note sent to clients.

"The GBPUSD, currently under intense pressure, remains fundamentally bearish from the BoE’s hesitance to commit to raising UK rates and this may offer a short term interest rate differential between the Bank of England and Federal Reserve," Otunuga added.

On a constructive note about China, Berenberg chief economist Mickey D.Levy wrote to clients saying that worries about its devaluation of the currency were "overstated".

The currency's so-called trade-weighted value - its value measured against a basket of its main trading partners, that is - had in fact strengthened significantly in recent years while labour costs had rocketed.

Hence, "a modest depreciation of its currency is an appropriate adjustment that is positive for China’s economy and global performance."

Nonetheless, Accendo Markets's head of research, Michael van Dulken, was more wary, telling clients that calm had returned to markets but rhetorically asking "but for how long?"

To take note of, on Friday Goldman Sachs reportedly marked up its forecasts for the US dollar/yuan exchange rate for 2016 and 2017 to 7.0 and 7.3, from 6.60 and 6.80, respectively.