After the China let its currency RMB devaluing, USD/CNY push above 7.0 it caused the escalating trade tensions between the world's two biggest economies US and China. Mr. Trump rebuked China for letting its currency sink to the almost a historic low, he states China is “currency manipulation” and it is a "major violation." Which will greatly weaken China over time! The US Treasury Department also formally accused China of manipulating its currency, and claim this pattern of intervention violates China's commitment under the G20, a global forum for the world's largest economies, to refrain from devaluing its currency to boost its economy at the expense of other nations.
Investor unnerved by the Sino-US trade war, Currency War, protests in Hong Kong and a crash in Argentina’s peso currency sought safety. The safe investment- Gold hit six-years high above 1555. Japanese yen drop below 105 to 104.44 at Aug 26, and the US dollar rallied.
The pressure of RMB depreciation comes from trade wars. The People's Bank of China, the relevant person in charge said that the " Chinese Yuan break 7" was mainly "affected by unilateralism and trade protectionism measures and the imposition of tariff increases on China." China RMB deprecation is the most powerful tool for countering the increase of $300 billion in commodity tariffs.
After the trade war began, the global economic and trade situation began to go weaker, especially in export-oriented countries. Every country tried to lower their interest rate and to depreciation their own currency in order to increase their export trade. The United States and China are considering the same direction, exhaust all method to maintain the currency weakness, in exchange for price competitiveness, protect exports, and avoid recession. After the trade war start, the United States became the target of international funds seeking for profit and hedge because its economy was relatively comparative stable. US stocks rose sharply, and the trend of the US dollar index also rose. In contrast to rival China, the exchange rate of the RMB against the US dollar has continued to depreciate.
In the short term, the exchange rate of the RMB against the US dollar may remain stable at around 7 unless the US government continues to impose import tariffs on Chinese goods in the second half of this year. If the United States continues to upgrade trade frictions, Chinese government may help export companies hedge the pressure of tax increases by letting the RMB against the US dollar exchange rate under market pressure. On the other hand, how United States will react with the RMB depreciation, what is Federal Reserve next move, will cut interest rates aggressively against the depreciation of the Chinese currency? What sanctions will the US do regarding Yuan break 7, it is worth observe.
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