This archive report was first published on 6 August 2019.
On August 5, 2019, the US accused China of currency manipulation, escalating the trade war between the two countries. The US move came a day after China let the yuan weaken against the dollar, sending markets into freefall.
The yuan breached the 7.0 level against the dollar, a key threshold in the Chinese currency's value, and global equity markets tumbled amid fears of the escalating trade war. However, on August 6, 2019, forex trading was calmer, with the onshore yuan weakening 0.08 percent to 7.0512, and the offshore currency strengthening 0.24 percent to 7.0802 by late morning.
China's central bank weakened its central parity bank rate on August 6, 2019, to the lowest level in more than 11 years. However, the rate was set at 6.9683, which was less than many analysts were expecting.
"A more market-friendly China fix provided the first signal that the PBOC is having a second thought about weaponising the yuan," said Stephen Innes, managing partner at VM Markets Pte Ltd Singapore. "However, the fix is ambiguous enough to keep two-sided interest alive while still conveying a message to US trade hawks that in no uncertain terms will China be a pushover", he added.
The yuan's weakening came just days after the US announced plans to raise tariffs on another $300 billion in Chinese imports, accusing Beijing of failing to live up to commitments in trade negotiations. This would make virtually all of the roughly $660 billion in goods traded annually between China and the United States subject to tariffs.
On August 5, 2019, PBOC Governor Yi Gang insisted that China would not use currency devaluation in the trade war. He said China would "abide by the spirit of the G20 leaders’ summit" in June and not engage in competitive devaluation or use exchange rates to deal with problems such as trade disputes.
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