Yuan Weakens on Threats of Trade Sanctions from US & Europe

The yuan touched the highest level versus the US dollar today in more than two years on the speculation that China would allow its currency appreciate as the US and Europe threaten to implement the trade sanctions.

The wave of the interest rate cuts across the world caused the concerns about the so-called “currency war” as the nations attempts to weaken currencies to support their economies. On the annual meeting of the International Monetary Fund last week worries were voiced that the race to lower the exchange rates may harm the global economy. It was considered inappropriate particularly for China to weaken its currency while the dollar so weak on the overseas markets.

In the response China’s central bank set the daily reference rate at the record high for the second day. The Chinese government tries to deflect demands for the faster appreciation of the yuan in the anticipation of more pressure from the US and Europe. Zhou Xiaochuan, the Governor of the People’s Bank of China, said:

China’s exchange-rate policy is, based on the market supply and demand relationship, to move gradually to the equilibrium point. We do that in a gradual way, rather than a shock therapy.

USD/CNY traded near 6.6689 today as of 17:53 GMT after it opened at 6.6730 and reached the lowest level in more than two year of 6.6639. EUR/CNY fell from 9.3385 to 9.2675.

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