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Chinese Yuan Rallies on Trade Hopes, Factory Activity

November 5, 2019 at 17:08 by Andrew Moran

Chinese yuan denominationsThe Chinese yuan is rallying on Tuesday as the world’s two largest economies appear closer to signing the first phase of their comprehensive trade agreement. The currency was further strengthened on positive factory activity data amid the ongoing global trade hiccups. Could the yuan climb above the seven threshold as Beijing attempts to reverse the economy’s downward trend?

The Caixin manufacturing purchasing managers’ index rose to 51.7 in October, up from 51.4 in September – anything above 50 indicates expansion. This is the best reading in 32 months.

However, China’s services activity advanced at its slowest pace in eight months as the Caixin services PMI slumped to an eight-month low of 51.1.

Global financial markets believe that the US and China will soon establish the first phase of a trade deal and then move on to the next part. Over the weekend, Commerce Secretary Wilbur Ross said that the federal government will likely issue hundreds of licenses to businesses interested in Huawei devices and services. There are also reports that the administration could cancel more than $100 billion in Chinese tariffs as soon as the first phase is agreed upon.

Plus, additional reports show that Chinese officials are finalizing the language of the deal. President Xi Jinping also captured headlines by promising more imports, lower tariffs, and domestic markets open to foreign firms.

Distances between countries are getting shorter, and interactions among countries are growing, hence the possibility of differences and friction.

The right solution lies in consultation and cooperation. All problems would be settled in the spirit of equality, mutual understanding and accommodation.

Right now, trade representatives are considering a new site to sign a partial agreement after the Chilean government canceled the Asia-Pacific Economic Cooperation (APEC) summit because of nationwide protests that have crippled the country.

Despite the positive data and the bullish developments in the trade negotiations, the business confidence outlook has slumped to a 15-month low.

The USD/CNY currency pair tumbled 0.29% to 7.0097, from an opening of 7.0304, at 15:56 GMT on Tuesday. The EUR/CNY plummeted 0.83% to 7.7587, from an opening of 7.8231.

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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