- At its highest point since mid-November, the yuan’s USDCNY pair—which measures how many yuan are needed to purchase one dollar—rose as much as 0.1% to 7.2628.
- The People’s Bank of China established a lower midpoint rate for the yuan on Monday, which caused the currency to weaken initially. The correction was made as sentiment toward China deteriorated and selling pressure on the yuan increased.
- The offshore yuan saw a significant decline, as the USDCNH pair increased above 7.28 to reach a seven-month high.
- The PBOC has made an effort to keep the yuan somewhat stable despite recent selling pressure, but given the currency’s recent weakness, it seems that the central bank may be forced to allow the yuan to devalue shortly.
- Through the midpoint fix and market operations, the PBOC has managed to maintain a firm grip on the yuan so far. Early this year, it allegedly made currency market interventions to prepare the yuan for a wave of selling pressure.
- However, opinions of China have significantly worsened in recent weeks, particularly after Beijing hinted at the potential for a trade war over import taxes on Chinese electric cars levied by the US and the EU.
- Since Europe is a significant market for domestic EV manufacturers, tariffs from Europe were a big source of friction for China. Chinese automakers were also seen threatening to impose retaliation levies on imports of cars from Europe.
- This week, the ministers from China and Germany convened to deliberate on the impending July tariffs.
- Concerns about a trade war were heightened by the possibility that Canada will follow the US and the EU in enacting restrictions on Chinese EVs, which are seen to provide fierce competition for domestic automakers.
Source:
investing
