SHANGHAI (Reuters) – U.S. President Donald Trump’s criticism of China’s foreign exchange policy appears to be unfounded, given the yuan’s relative strength in currency markets and Beijing’s efforts to keep it stable.
Trump said on Monday he told the leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States.
WHY IT’S IMPORTANT
China’s central bank has appeared to prioritise financial and currency stability in recent months by delaying monetary easing as a weaker yuan could weigh on domestic demand and trigger capital outflows.
BY THE NUMBERS
China’s CFETS basket, which measures the yuan’s value against currencies of its major trading partners, is down 1.4% this year but above the 100-mark implying the yuan has been stronger than those currencies.
China’s yuan has fallen 2.5% against the dollar since Trump’s election win, merely reflecting a rise of the same magnitude in the dollar index.
CONTEXT
The yuan’s low yields and China’s economic slowdown have exerted pressure on the currency.
Authorities have tried to stop it depreciating. The People’s Bank of China (PBOC) has been guiding the yuan’s daily midpoint higher and unveiled measures to attract dollar inflows.
Meanwhile, China’s major state-owned banks have regularly sold dollars in an attempt to prop up the yuan.
KEY QUOTES
Carol Kong, currency strategist at Commonwealth Bank of Australia, said Trump’s remarks, while not true, might encourage China and Japan to jawbone the currencies lower to avoid higher tariffs.
“There is a risk the Chinese government will use a one-time yuan appreciation as a bargaining chip in negotiations with the U.S. This may also explain why the PBOC has retained support for the yuan at the daily fix despite U.S. tariffs.”
Goldman Sachs said recent improvements in market sentiment around China’s tech developments should support economic growth and it revised yuan forecasts higher.
(Reporting by Shanghai Newsroom; Editing by Vidya Ranganathan and Jacqueline Wong)
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