Will the yuan’s recovery last?

published 15 November 2019

Hands holding 100 yuan banknotes © iStockphotos — The yuan has reached a three-month high

"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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

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".

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.