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US drops China 'currency manipulator' label, yuan gains
CHINA'S yuan climbed to its highest level since July on Tuesday as the Japanese yen plumbed eight-month lows, against the backdrop of the US Treasury Department reversing its decision in August to designate China as a currency manipulator.
The announcement on the yuan came as Chinese Vice-Premier Liu He arrived in Washington ahead of Wednesday's signing with US President Donald Trump of a preliminary trade agreement aimed at easing tensions between the two countries.
Minori Uchida, chief currency strategist at MUFG Bank, said: "Washington's decision to lift its designation of currency manipulator on China has added to the positive mood that has been already in place ahead of the signing of the trade deal."
China has also pledged to buy almost US$80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce, said a Reuters source.
The US dollar rose as much as 0.3 per cent against the Japanese yen to 110.22 yen, its highest since late May, versus a currency that tends to weaken when investors are buoyant. It last stood at 109.97 yen.
In onshore trade, the yuan strengthened to as high as 6.8731 per dollar, its strongest since late July. China's central bank set the midpoint of the yuan's daily trading band at 6.8954 per dollar on Tuesday, its strongest fixing since Aug 1.
The offshore yuan also firmed to its strongest level in six months, hitting 6.8662 yuan before easing off.
Chinese forecast-beating trade data also helped to boost optimism about the economy and the yuan.
Despite the optimism, some analysts said there were signs of a bid for safety.
Some said this reflected nervousness, as risky emerging-market currencies such as the South African rand and Turkish lira fared poorly.
"The interesting question is how long can this optimism last, how much further can it go. A lot surely has to be in the price," said Jane Foley, senior FX strategist at Rabobank.
"If we were to get another rise in tensions between the US and China and if we were to turn our attention to phase two (of the trade deal)... it's very likely that we will see the renminbi falling again," she said.
In Europe, sterling weakened further on Tuesday, hitting a seven-week low against the euro at 85.95 pence before recovering.
The currency has come under pressure from weak data releases, raising the chances of a cut ininterest rates by the Bank of England.
Money markets forecast an almost 50 per cent probability of a cut at a meeting on Jan 30. REUTERS