The yuan has been arguably the key talking point in markets this week
- PBOC sets USD/ CNY reference rate for today at 6.9225 (Monday)
- PBOC sets USD/ CNY reference rate for today at 6.9683 (Tuesday)
- PBOC sets USD/ CNY reference rate for today at 6.9996 (Wednesday)
- PBOC sets USD/ CNY reference rate for today at 7.0039 (Thursday)
- PBOC sets USD/ CNY reference rate for today at 7.0136 (Friday)
The PBOC's daily yuan fixing took center stage in markets this week as traders got a sense of how China is choosing to respond to the US in the trade war.
The initial reaction as they allowed the yuan to weaken past 7.00 per dollar saw jitters and fears that we could see competitive devaluation in the currency but China was quick to remind markets that such a scenario will not take place.
However, what is clear in the way that they guided markets this week is that we are eventually going to see a weaker yuan as the trade war drags on and as tensions between the two countries continue to escalate further in the coming months.
That said, they have also made clear that any yuan weakness will not take place rapidly and that they will be ready to fight back against market speculation if traders take things too far. After all, China cannot afford risking capital outflows considering the state of its economy over the past year or so.
As such, we have now entered a new norm not just in terms of the US-China trade rhetoric but also for what it means to currencies all over the world. We're in the makings of a pseudo-currency war of sorts and markets will have to be prepared for global central banks participating in the battle as the race to the bottom heats up.
