Markets across the world ponder central banks' role in helping economies

The upcoming Federal Reserve policy meeting later this month will be one of the most watched global financial market events since the United States central bank began raising interest rates at the end of 2015, and the first time since the global financial crisis.

This time, the expected outcome and euphoria surrounding the meeting is a completely different story compared to what transpired four years ago. The market is not looking for the Federal Reserve to raise interest rates, but watching to see if it cuts them instead.

This could have instant implications for the yuan and wider financial markets, because it would immediately encourage investors to keep capital in emerging markets - essentially giving a nudge of approval for the yuan to strengthen.

The narrative of the Federal Reserve coming to the rescue on fears that the global economy is decelerating should be taken with a grain of salt. The US economy remains the undisputed advanced markets champion, further evidenced by the US adding another impressive 220,000 plus jobs in June.

However, investors are convinced that the Federal Reserve will cut US interest rates this month, and financial markets have priced in lower interest rates as a near certainty.

But is this a sign of overconfidence from investors that the Fed will come to the rescue?

If the Federal Reserve swerves against expectations and does not succumb to investor demands for lower interest rates, the dollar will strengthen at the expense of damage across global markets.

In short, the $100-plus increase in the valuation of gold over the past six weeks would retrace, investors would question the sustainability of the above-10-percent rally in US stock markets and the 1-percent weakness suffered in the US dollar throughout recent months.

This would also add selling momentum into emerging markets, meaning the yuan would once again be at threat to flirting with the 6.90 level against its US counterpart.

The offshore Chinese yuan has strengthened above 0.3 percent so far in 2019, with the US dollar/offshore yuan marginally below the psychological 6.90 level at time of writing. The debate around what is next for the US dollar is a contentious topic for investors, and a topic that has high consequences over what is next for the yuan throughout the second half of 2019.

Even away from the Federal Reserve and US interest rate policy, there are multiple questions to consider for the fortunes of the Chinese currency and its US counterpart.

Will the universal slowdown driven by US-led trade disputes against a number of its trading partners seen in recent months continue to weigh on economic data?

Will the US's protectionist approach lead to an economic crisis in 2020?

Will the eventual implementation of Brexit later in 2019 contain risks for global markets?

Do we need to be concerned about the escalating tensions between the United States and Iran?

Economic data releases have already proven the consensus that the global economy is slowing. Where the China economy has more room to stand on than the US, is the flexibility it holds with monetary policy.

In short, the People's Bank of China has more room to help the Chinese economy than what the Federal Reserve has as ammunition to help the United States.

Jameel Ahmad is the global head of currency strategy and market research at FXTM, a foreign exchange trading platform.