Trump’s postponement of deal with China causes yuan to go south
Currency – The impact of the trade war between the United States and China continues to impact currency markets across the world. Monday, the yuan dropped marginally against the dollar. This is after President Trump announced he is not ready to enter a trade deal with the Asian giant. Trump made the announcement on Sunday, causing a panic sell among the yuan by traders. This reflected the unwillingness of the trader to make losses in an unpredictable currency market. Analysts believe that the move by Trump will pressurize China to accept a U.S. friendly arrangement in the United States. That’s if the situation changes and the two sides reach an agreement.
The panic sell of the yuan escalated into Monday as the Chinese currency dropped to 7.0447 per USD. This was averagely the same level at which it traded in the previous session. The Chinese currency veered off level fixed earlier by the People’s Bank of China (PBOC) at 7.0365 per USD. This drop represented 0.12 percentage points off the level fixed by the PBOC.
Some traders said the U.S./China trade talks will continue to be the major determining factor of the direction the yuan takes in the near future. The popular sentiment is that the situation will not change until the two superpowers reach a deal.
White House economic adviser Larry Kudlow had released a statement on Sunday raising hopes about an impending deal. He said Chinese trade officials were preparing to fly into the U.S. for talks with their American Counterparts.
On the same day Trump said he isn’t ready to enter a deal with China. To him, there is unlikely to be a trade deal until there is resolution of the Hong Kong protests.
POBC Revised Interest Cap Set To Ensure Cheaper Credit
The Chinese currency – the yuan – appeared to take a hit, Monday. This came after the announcement of a new interest rate benchmark by the POBC on Saturday. In a move meant to check impending recession, the POBC cut existing interest rate by 45 points. Some traders said the loan prime rate (LPR) is expected to go down by between 10 and 15 basis point. Most analysts believe interest rates cut is meant to ensure cheaper loans for business people. However, it could also be a measure to check the further deterioration in the value of the yuan.
Apart from high interest rates, the other reason for slowing growth is the long-standing trade war with the U.S. Analysts see the reduction in interest rates as a masterstroke. They say the new interest rates will ease pressure on the Chinese currency. It could even take it to the level fixed earlier by the POBC.
A Hong Kong-based trader said China’s firm grip on the financial sector will certainly result in lower interest rates. The indirect but intended consequence is propping up the yuan.
All we can do is speculate if China and the U.S. will enter a trade deal any time soon. Meanwhile, currency traders keep waiting for positive news.
