Economy

China Relations: US Will Retaliate If China Further Devalues Yuan

China Relations: US Will Retaliate If China Further Devalues Yuan

The US dollar (USD) wrapped up its after-hours session just a tad higher versus most of its counterparts late Thursday, but it was the Chinese yuan (CNY) that stole the show after China's central bank fixed the currency and elevated it on a stronger position. There was no sign of the panic seen earlier this week even as the yuan dropped to a fresh low versus a basket of trading-partner currencies.

A U.S. Treasury official said Secretary Steven Mnuchin spoke with IMF Acting Managing Director David Lipton this week by telephone about currency consultations and also about the leadership succession.

Why did the yuan drop in value in the first place? "So this latest upping the ante of the trade war is not good for either side".

Yuan traders are finally moving on from the 7-per-dollar complex that has gripped the market for years.

While a weaker currency is a natural outcome of China's worsening economy and a central bank in easing mode, Monday's sudden depreciation made it a target of criticism from the Trump administration.

In a statement, the Chinese Central Bank said it had "the experience, confidence and ability to keep the yuan exchange rate at a reasonable and balanced level, while the markets were playing the yuan down, falling to almost 7.11 to the dollar early in the day, before a recovery suggesting that the central bank would intervene to calm the markets".

"There's no chance that any of the G7 countries or any other country would support the United States on this because there is no evidence that China is manipulating its currency", he said. According to TD Securities senior foreign exchange analyst Mazen Isa, Wednesday night's fixed over-7 handle and the markets in general "seem to be taking the shift fairly well, so probably some calm is needed in the market at least for the near term".

More news: Dolphins receiver Kenny Stills criticizes team owner for supporting President Trump

Lowering the benchmark lending rate tends to reduce demand for the dollar, thereby weakening its value, but the United States economy remains stronger than those of many of its trading partners and investors flock to the dollar when there is economic uncertainty.

China devalued the yuan in 2015 in an attempt to curb depreciation pressure, stunning global markets.

Here are four things to know about how China manages its currency and what a currency war could mean for the two countries.

Under a 1988 USA currency law, the main goal of the designation is to force negotiations with the offending country to eliminate any unfair advantage.

China does carefully manage its currency to keep the yuan at a stable and targeted value through a host of measures, chiefly through buying and selling US dollar bonds and controlling the outflow of yuan from its borders.

So far, China has argued that the fluctuation in the yuan exchange rate is due to market forces.


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