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Chinese Yuan Weakens As Trade Talk Hopes Fade

July 29, 2019 at 19:45 by Andrew Moran

Yuan coins, notes, and a chartThe Chinese yuan is weakening against several major currency rivals to kick off the trading week, driven by investors not expecting much to come out of the renewed US-China trade negotiations this week. Traders’ hopes were dashed after one prominent White House official conceded he “wouldn’t expect any grand deal” as the world’s two largest economies hold talks.

Larry Kudlow, the director of the National Economic Council, spoke with CNBC and dampened any expectation that Washington and Beijing can reach a landmark trade agreement this week. He noted that negotiators are going to restart discussions and go back to where trade talks left off in May.

Kudlow added that both countries must still address important structural issues, such as technology transfers and intellectual property, before they move onto the next stage.

A US trade delegation left for China on Monday. This is the first round of deliberations since President Donald Trump and President Xi Jinping agreed to another trade truce at last month’s G20 summit.

Financial markets were disappointed by the remarks as leading US stock indexes finished the session relatively flat.

In other news, the People’s Bank of China (PBOC) published a draft of regulations for financial holding companies as part of efforts to limit the possible spread of risks across the entire market. The central bank wrote in a statement:

There is a regulatory vacuum around some financial holding companies, especially those starting from non-financial businesses, which has led to risk accumulation and exposure.

Meanwhile, Chinese investors are beginning to panic after early indicators signaled that the economy further weakened in July. Several Bloomberg Economics measurements in market sentiment and business conditions have many worried that the slowdown will continue for the rest of the year.

David Qu from Bloomberg Economics said:

Trade disputes are still a key risk to both Chinese and other major economies. Producer prices are under pressure, as material prices may be influenced by the concerns about trade, and as we see in the PMI surveys, domestic confidence is still subdued.

On Friday, industrial profits in June slumped 2.4%, down from the 2.3% contraction in the previous month. The next key data – manufacturing and non-manufacturing purchasing managers’ index (PMI) will be released on Tuesday; the consensus is 49.3 and 53.8, respectively.

The USD/CNY currency pair climbed 0.21% to 6.8934, from an opening of 0.18%, at 19:37 GMT on Friday. The EUR/CNY surged 0.41% to 7.6851, from an opening of 7.6535.

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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