FX Rate News

The offshore yuan pulled back from an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from weakening further, following a sharp drop that prompted the U.S. government to declare China was manipulating its currency.

China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency. On top of that, the People’s Bank of China fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.

These moves have led analysts to think that Chinese authorities may not be ready yet to let the yuan weaken much further

“The recovery in yuan…is triggered by the fixing, which has eased some concern about competitive currency devaluation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The offshore yuan was last up by 0.27% at 7.0269 against the dollar after plunging to 7.14 Monday night, the lowest since offshore trading began in 2010. The onshore yuan opened trade at 7.0699 per dollar, versus its last close at 7.0498.

If the Chinese central bank fixes the rate at or above 7, this will likely be an “indication they are ready for the remnibi weakening phase,” said Stephen Gallo, forex strategist at BMO Capital Markets.

The small rebound in the Chinese remnibi has shifted investors’ focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.

The yen was last down by 0.46% at 106.43, pulling back from a 16-month high of 105.52 it reached overnight excluding the January flash crash. The franc was 0.2% weaker, bouncing off a 25-month high it reached on Monday.

On Monday, China let its currency break through a key support level to an 11-year low in a sign that Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs.

And on Tuesday, China’s official Communist Party newspaper said that the United States was “deliberately destroying international order”, a day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute.

The escalation in the US-China trade war began last week when President Donald Trump unexpectedly said he would impose 10% tariffs on $300 billion of Chinese imports from Sept. 1., essentially imposing a levy on all Chinese goods coming into the United States. Since then, the offshore yuan lost 3.4% of its value against the greenback.

Elsewhere, the euro was flat at $1.1185 after jumping to an 18-day high against the dollar overnight. The index which tracks the dollar against a basket of six major currencies was also flat at 97.62.

The pound was up 0.3% at $1.2176, not far from the 31-month low it reached last week.

China let its yuan weaken below 7 yuan per dollar on Monday, an 11-year low, as the escalation in the U.S.-China trade war shook currency markets.

Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens, with the Japanese yen surging to a seven-month high.

Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break thought the floor to its lowest in the onshore market since the 2008 global financial crisis.

In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began. The currency was headed for its biggest one-day drop in four years. It was last down 1.45% at 7.0395 in offshore markets.

The fall came after Beijing vowed on Friday to fight back against U.S. President Donald Trump’s decision to impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce.

“The fallout has been most evident in the Asia region,” MUFG analyst Derek Halpenny said. “We certainly expect to see general FX volatility increase in the coming days with daily PBOC (People’s Bank of China) CNY fixes an important focus each day.”

The currencies of other Asian economies are closely linked with China’s growth prospects also dropped. The Korean won fell 1.4% against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7%.

The Australian dollar, often used as a proxy bet on China, shed as much as 0.5% to $0.6748, a seven-month low.

Japan’s yen, which investors buy in times of risk aversion, rose 0.7% to its highest since a January flash crash. The yen was last up 0.7% at 105.89, after hitting 105.78 earlier.

Japan’s top currency diplomat, Yoshiki Takeuchi, warned that Tokyo was ready to intervene if yen gains threatened its export-reliant economy.

The U.S. dollar edged lower against a basket of currencies, down 0.38% at 97.70. Against the euro the dollar slipped to $1.111.

Analysts said Trump, who has repeatedly called for a weaker dollar in 2019, was unlikely to ignore the yuan’s depreciation.

“There is also a risk later that President Trump responds to 7+ levels in $/CNY by claiming that China is playing a ‘big currency manipulation game’. This may extend to a threat to weaken the dollar, which will only encourage short positions in USD/JPY and a pick-up in traded volatility prices,” ING analysts said.

The Swiss franc, another safe-haven currency, strengthened 0.2% to 1.0883 francs per euro, a two-year high.

Sterling fell again after media speculation over the weekend that Prime Minister Boris Johnson was preparing for a general election. The pound shed 0.5% to $1.2105, not far from its two-year low of $1.2080 touched last week.

It was 0.5% weaker against the euro at 91.84 pence.

A U.S. threat to impose new tariffs on Chinese imports pushed the safe-haven Japanese yen to a five-week high against the dollar and a two-and-a-half-year high against the pound.

U.S. President Donald Trump said a 10% tariff would be imposed on $300 billion worth of Chinese goods on Sept. 1, after U.S. negotiators returned from trade talks in Shanghai and reported no progress. Trump claimed China had failed to live up to promises made in previous talks.

The yen was up 0.4% to 106.95 against the dollar. It had jumped to 106.86 in Asian trading, its strongest since June 25. It was last up 0.6% at 129.61 against the pound after gaining to 129.41 earlier, its strongest since November 2016.

“There was a speculative move to test the dollar/yen’s downside, but it ran into a lot of real-demand bids,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“Yen buying still has further room to run, especially against the crosses. Trump has given us plenty of reason to move to risk-off trades. The trade war will be in focus for some time to come.”

The battered pound recovered some losses on Friday, but it was not far from the 30-month low it reached on Thursday. It was last trading unchanged at $1.2123 and at 91.48 pence against the euro.

Most market participants remain wary of sterling, worried that the chances of a disorderly Brexit grew after Boris Johnson took over as prime minister last month.

Traders will be watching UK construction purchasing managers’ survey due at 0830 GMT. According to economists polled by Reuters, the PMI is expected to rise to 46 in July from 43.1 in June, though still remaining in the contraction territory.

The euro was unchanged at $1.1091, not far from the 26-month low it hit the previous day.

Non-farm payrolls are due in the United States later in the day. Economists a decrease in the number of jobs added to the economy, to 164,000 in July from 224,000 in June.

Responses to the jobs report are “skewed toward a bigger move to a weak report, given it would reinforce the increased global risk concerns,” said Derek Halpenny, currency strategist at MUFG after the escalation in the U.S.-China trade war.

Elsewhere, the Swiss franc reached a two-year high of 1.0949 against the euro.