- US-China trade war if leading to a full-blown currency war as PBOC is increasingly favoring a weaker Yuan.
- USD/CNY hit fresh one-year high above 6.8.
The People’s Bank of China (PBOC) is increasingly favoring a weaker currency as it would help the economy absorb shocks from trade war with the US.
The central bank devalued the Yuan by most since June 2016 earlier today, practically egging markets to bet against the Chinese currency.
As a result, USD/CNY has risen above 6.8 for the first time since July 12, 2017.
More importantly, the slide in CNY is pushing the USD higher across the board and that could force the Trump administration (and the Fed) to take retaliatory action. President Trump has already expressed concerns regarding Fed rate hikes and may up the ante in coming days if the CNY continues to lose ground.
Clearly, two of the biggest economies of the world are closing on a full-blown currency war.