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Yuan Slides After China Weakens Fixing by Most in Two Years; Dollar Falls

Published 07/20/2018, 12:03 AM
Updated 07/20/2018, 12:03 AM
© Reuters.  The yuan slumped further on Friday

© Reuters. The yuan slumped further on Friday

Investing.com – The yuan slumped further on Friday after the China’s central bank weakened its daily reference rate by the most since June 2016.

The USD/CNY pair traded sharply lower and tumbled to a one-year low after The People’s Bank of China (PBOC) weakened the fixing by 0.9% to 6.7671 per dollar on Friday.

Investors are concerned with the PBOC’s seeming comfort with the yuan’s slide. On July 3, Chinese central bankers pledged to keep their currency stable and to not use it as a weapon in the trade conflict with the U.S. That effort helped the yuan reverse some of its plunge earlier this month.

Nomura Holdings Inc. said in a note on Thursday that the decline in the yuan could soon turn to boom should the People’s Bank of China shift toward stimulus mode in the world’s no. 2 economy.

“As Chinese financial conditions further deteriorate and market stress worsens, we actually perversely push closer to the risk-asset positive outcome of escalated PBOC stimulus and easing measures,” said Charlie McElligott, a strategist with Nomura’s equities group. “Essentially, we are nearing the pain-point of the ‘PBOC Put.’”

“An additional ‘right tail’ scenario is that the worse things get in China in the near-term, the more likely it is that we too could see Chinese concessions in the trade war with the U.S.,” he wrote. That “could destroy market tension and volatility and drive a gap higher in risk sentiment,” he said.

Meanwhile, the U.S. Dollar Index, which tracks the greenback against a basket of other currencies, slipped 0.06% to 94.92 on Friday after U.S. President Donald Trump criticized the Federal Reserve for raising interest rates.  

Trump said he is “not thrilled” with the Fed’s plan to raise rates four times this year and expressed concerns that the work he has done would be nullified.  

Fed officials, including Chairman Jerome Powell, have raised interest rates twice this year so far and have pointed to two more before the end of 2018. 

“I’m not thrilled,” Trump said in an interview with CNBC. “Because we go up and every time you go up they want to raise rates again. I don't really — I am not happy about it. But at the same time I’m letting them do what they feel is best.” 

“But I don’t like all of this work that goes into doing what we’re doing,” Trump added.

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