Is China deliberately devaluing the yuan amid trade tensions?

Question

Accepted Answer

Concerns Mount Over Potential Deliberate Yuan Devaluation Amid Trade Tensions

Investor worries have resurfaced regarding the Chinese yuan, with escalating trade tensions between the United States and China raising concerns that Beijing might be employing deliberate devaluation as a policy tool. This apprehension stems from the yuan's recent slide against a strengthening US dollar, a trend that has drawn explicit accusations of currency manipulation from US President Donald Trump. The offshore yuan's one-week implied volatility has consequently surged to a five-month high, underscoring the market's heightened sensitivity to potential currency shifts.
PBOC's Recent Currency Fixings and Market Reactions

The People's Bank of China (PBOC) has made notable adjustments to its currency fixings, contributing to market speculation. Last week, the PBOC set the yuan's reference rate past 6.7 per US dollar for the first time in nearly a year. This was followed on Friday by the most significant weakening of the reference rate in two years. While the yuan experienced a recovery on Friday, reportedly aided by a major Chinese bank selling US dollars, the PBOC strengthened the yuan's fixing by 0.12 per cent today.
Potential Impact of Further Yuan Depreciation

Market participants are closely watching the yuan's trajectory, as a further decline to 7 against the US dollar could precipitate another wave of panic selling across emerging markets. This sentiment was echoed by Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Standard Investments, who noted the yuan's significant impact on market risk, particularly within Asia. He expressed confidence, however, that Chinese authorities would prevent disorderly currency movements, given their recent success in managing capital outflows.
Yuan's Performance Relative to Other Emerging Market Currencies

The yuan has been among the weaker performers in the emerging market currency space this month, trailing only Turkey's lira. This contrasts with the stronger performance of currencies such as the Argentine peso, Mexican peso, and Brazilian real. Asian currencies, including the South Korean won and Indonesian rupiah, have been particularly affected by the broader sell-off in emerging markets. Aberdeen Standard has maintained an overweight position in Latin American currencies for an extended period, reflecting a strategic shift amidst these market dynamics.

Reading history

Hide →

This history is cleared when the page is closed.

Is China deliberately devaluing the yuan amid trade tensions?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends