Trade Tensions and Yuan Volatility

After China responded to US tariffs forcefully this week, the question of the whether the currency will play any role in retaliation has resurfaced.  But the irony of China’s current strategy of asymmetric exchange rate management is that virtually any change will trigger yuan weakness against the dollar and more volatility, even if this is not intended as a response to trade tensions.  The yuan’s surprising stability relative to other major currencies suggests ongoing PBOC intervention, rather than central bank guidance of the market, while recent balance of payments data still reveal strong outflows from Chinese residents.

Posted April 9, 2018
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