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Chinese Yuan Sideways As Investors Weigh Economy

January 8, 2019 at 20:12 by Andrew Moran

Yuan note reverseThe Chinese yuan is trading sideways on Tuesday as investors continue to weigh the economy. Beijing has attempted to ease traders’ minds by confirming reports that US-China trade talks are improving and that the government and central bank are employing stimulus measures to spur growth. But some experts believe that the world’s second-largest economy is worse than officials are saying.

While the People’s Bank of China (PBOC) is forecasting growth above 6%, one economist tells CNBC that current growth is likely below the 6% threshold. Citing sluggish domestic demand, Taimur Baig, chief economist at DBS Group Research, explained that the structural changes in the economy are contributing to the weakness.

Baig does think that external demand, even in the middle of an intense trade war, “is not that bad.”

As the year came to an end, China anticipated a 6.5% gain in gross domestic product (GDP) in the fourth quarter. Observers note that this is potentially a rosy scenario that officials are unrealistically hoping for.

One Wall Street titan believes that the federal government has not done enough to stimulate the economy. J.P. Morgan Asset Management needs to implement “a little more aggressive easing” to weather the economic storm.

Over the last month, the PBOC said that it will reduce the amount of reserves that financial institutions are required to hold by 1%. This would be the fifth time the PBOC has done this in the last year. The central bank also introduced a new tool called the targeted medium-term lending facility aimed that pushing commercial banks to lend more to small businesses. Over the coming months, Beijing will boost infrastructure spending and cut taxes.

But Hannah Anderson, global market strategist, told the business news network that it is not enough.

Despite the words of caution on the part of financial experts, the yuan is performing quite well against the greenback. In fact, the yuan is on track for its strongest level against the US dollar in a month, advancing roughly 1%. The buck is headed in the opposite direction, sliding against most currencies.

The USD/CNY currency pair ticked up 0.03% to 6.8532, from an opening of 6.8510, at 17:51 GMT on Tuesday. The EUR/CNY tumbled 0.27% to 7.8411, from an opening of 7.8626.

If you have any questions, comments or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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