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Beijing May Question Yuan Peg As Fed Prepares For Liftoff

Yesterday's ISM non-manufacturing report showed US services sector expansion considerably stronger than economists had anticipated. The strength of the services sector expansion however has diverged materially from what we see in US manufacturing.

ISM PMI MFG. vs Non-MFG 2008-2015

The reason for the divergence is the strength of the US dollar, which on a trade-weighted basis is at the highest level in over a decade.

Trade Weighted USD 2003-2015

The strengthening US currency has generated a significant drag on growth in the manufacturing sector. We've all read the headlines:

USD Headline/CNBC

But haven't we seen this divergence between the services and the manufacturing sectors elsewhere? Indeed, on Tuesday Markit published a similar chart for China.

Caixin China PMI Output Services vs MFG vs Composite: 2006-2015

This of course...