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

"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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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".




The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020

Welcome to Currency Corner – your weekly guide to the world’s biggest market

Forex is by far and away the biggest market in the world, with an average daily trading volume of over $5trn per day. Here, Dominic Frisby looks at th…
3 May 2019

The nature of money

The best currencies are based on a strong democracy, strong institutions and a firm attachment to both the rule of law and the protection of private p…
28 Feb 2019
China's economy

Has Hong Kong become a failed state?

Hong Kong cannot protect its citizens, provide basic services or command the trust of its people, and it is failing to provide the safety and stabilit…
14 Feb 2020

Most Popular

Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020

Money Minute Wednesday 12 February: grim times for European industry

Today's Money Minute previews industrial production in the eurozone, plus the latest from America's central bank.
12 Feb 2020
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019