China’s yuan hit a five-month low Monday, with weakness driven largely by trade-war rhetoric, analysts say.
Blame trade-war worries, not intervention by China’s central bank, for recent weakness in the yuan, analysts said Monday.
The onshore currency is pegged to the U. S. currency and trades in a strictly defined range, though the offshore traded currency moves a bit more freely and in line with market dynamics. This means that any remarkable move in the yuan can prompt speculation about the involvement of the People’s Bank of China.
Generally speaking, a weaker currency makes a country more competitive on the global market, but central banks tend to step in if a selloff — or the opposite thereof — gets out of control.
The PBOC was clearly not trying to push its currency down, according to Stephen Gallo, European head of FX strategy at BMO, saying “on a broad basis the yuan still does not show a picture that represents a clear devaluation trend. This is not anything remotely like 2015.”
In fact, as Asian emerging market currencies have sold off against a broadly stronger dollar in recent weeks, the yuan remained remarkably stable in comparison, which “might suggest that policy makers have been intervening to support it,” said Oliver Jones, economist at Capital Economics.
“It has weakened by only 2% against the dollar since EM currencies generally began to slide in mid-April,” he said, adding that many other EMs dropped 5% or more, “and it has strengthened by about 1% in trade-weighted terms.
