Will the yuan’s recovery last?

China’s yuan pushed through the symbolically important seven-to-the-dollar mark for the first time since August last week. Will its strength continue?

Hands holding 100 yuan banknotes © iStockphotos

The yuan has reached a three-month high

Hands holding 100 yuan banknotes © iStockphotos

"China very much wants to make a deal", US president Donald Trump declared over the weekend. "Their supply chain is all broken, like an egg." Rumours that a forthcoming "phase one" deal between Washington and Beijing could include the rollback of some existing tariffs sent China's yuan through the symbolically important seven-to-the-dollar mark for the first time since August last week. It reached 6.98 to the dollar.

China's currency made headlines over the summer when policymakers in Beijing allowed it to fall to an 11-year low against the dollar, sparking US claims that the country was a "currency manipulator". The value of the yuan is set through a "managed float" system, with the price determined by a combination of market forces and central bank intervention. August's move above the seven-to-the-dollar mark, previously regarded as a "line in the sand", triggered speculation that a larger slump was coming.

Such a fall would have wide-reaching economic implications, potentially triggering a retaliatory "currency war" and sending a deflationary shock through the global economy. Yet the yuan's newfound strength didn't last long, writes Tian Chen for Bloomberg News. With conflicting signals coming from negotiators, the yuan spent "less than two days on the strong side of seven" before falling back.

The date and location of the signing of the much vaunted "partial trade deal" have yet to be confirmed. Analysts expect the currency to finish the year above seven to the dollar. "We wouldn't get too excited about the yuan," says Dominic Schnider of UBS Global Wealth Management. Economic activity in China remains weak and "the pendulum of trade tensions can shift quickly".

Recommended

The charts that matter: growth stocks continue their slide
Global Economy

The charts that matter: growth stocks continue their slide

As the US tech stocks and the dollar fell further this week, here’s what happened to the charts that matter most to the global economy.
15 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?
Bitcoin & crypto

Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?

Bitcoin has had its worst-ever start to a year. But it remains the “future of money”, says Dominic Frisby. Here, he looks at what might come next for …
12 Jan 2022
The charts that matter: markets start the year with a crash
Global Economy

The charts that matter: markets start the year with a crash

As markets start 2022 with a big selloff, here’s what happened to the charts that matter most to the global economy.
8 Jan 2022

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
Tech stocks teeter as US Treasury bond yields rise
Tech stocks

Tech stocks teeter as US Treasury bond yields rise

The realisation that central banks are about to tighten their monetary policies caused a sell-off in the tech-heavy Nasdaq stock index and the biggest…
14 Jan 2022