The vice president of the EU Commission, Jyrki Katainen, was in China last week along with met with Vice Premier Liu He, with both sides issuing a statement agreeing to oppose protectionism. An intentional weakening of the currency would likely be ill-timed, though analysts have also noted that will on a broader basis, the yuan can be firmer for the year versus a basket of currencies (compared to additional Asian along with emerging market currencies which are all markedly lower).
So far, markets do not seem to be panicking. Chinese policymakers have typically used offshore interest rates to counter speculative investor flows inside currency, however as of yet the wedge between offshore along with local interest rates has been stable.
Morgan Stanley analysts pointed to the difference between the current cost of the yuan along with what traders believe that will will be in 12 months’ time. This particular “spread” has been stable suggesting that will the market can be not expecting a “significant or sustained yuan depreciation to occur,” the analysts said.
However, they cautioned that will should that will spread start to widen, the market could start to see pressure on additional Asian currencies, such as the Japanese yen, as well as domestic supply chains. This particular would likely serve as a negative catalyst for risk globally along with be reminiscent of the similar risk-off episodes sparked by China, such as in early January 2016.
The base case though doesn’t appear to be one of durable yuan weakness. along with while China policymakers may look to use the currency as a retaliatory method, as of at This particular point along with until the first wave of tariffs on Chinese goods take effect on July 6, the response has been measured along with applied via tariffs along with cuts to the banks’ reserve requirements.