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China-US trade war: Yuan stabilized

China-US trade war: Yuan stabilized

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Jim Anderson - Public Relations

China responded to President Donald Trump about his tariff threats of another escalation of the trade war on Monday, allowing the yuan to drop to its weakest level in more than a decade and asking state-owned companies to suspend imports of US agricultural products. The yuan rate at auction on the exchanges of mainland China on Tuesday fell to a minimum for 11 years – 7.0699 per dollar.

Beijing on Monday revealingly allowed the currency to break the 7 per dollar mark for the first time since late 2008 after U.S. President Donald Trump announced a decision to impose a 10% duty on Chinese imports worth $ 300 billion, breaking the ceasefire in the trade war. Analysts assessed China's actions as a signal that the country does not intend to make concessions. This means that the trade war which has already affected global economic growth will only be tightened.

The United States officially called China a currency manipulator, and NBC began to restrain the strong rate of depreciation of the national currency. China has taken steps to slow down the falling of the yuan, as the effects of the depreciation on Monday continued to put pressure on the market. The National Bank of China has established a daily currency fix stronger than analysts expected and announced the planned sale of bonds in RMB in Hong Kong. These steps, taken a few hours after the United States called the country a currency manipulator, helped to boost the offshore yuan.

Dollar Extends Post-Fed Gains

Dollar Extends Post-Fed Gains

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Erik Holm - Head of media

The US dollar is rising to a basket of major world currencies during the Asian session on Thursday after the Federal Reserve System (FRS) made it clear that lowering the base interest rate is not the beginning of a cycle of easing monetary policy.

According to the results of the July meeting, the Fed lowered the interest rate on federal credit funds by 0.25 percentage points to 2-2.25% per annum. The reduction was the first since 2008 and coincided with the forecasts of analysts and market participants. At the same time, the head of the Federal Reserve Jerome Powell made it clear that the action of the Central Bank is not the beginning of a cycle of easing monetary policy. Earlier, most experts expected another decrease in the cost of lending before the end of this year.

However, despite the stated readiness for action, it was completely unlikely that the Fed really seeks to actively soften the policy. As a result, the Bank’s verdict turned out to be less pigeon than the markets expected. Accordingly, after its release, EUR / USD immediately fell to the 1.11 mark and updated the 26-month low in the region of 1.1085, and the dollar index bounced to the maximum since May 2017 at 98.40. The probability of a Fed rate cut in September was revised by markets from 78% to 68.5%.

 

The US dollar rose, the pound continued to fall

The US dollar rose, the pound continued to fall

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Erik Holm - Head of media

On Tuesday, the US dollar rose against other major currencies. Investors expect the Fed to lower interest rates, while the pound continues to fall in price due to fears about a “tough” Brexit.

By 15:38 London time, the US dollar index, which shows the value of the dollar against a trade-weighted basket of six major currencies, rose 0.1% to 97.877.

On Tuesday, the two-day Fed meeting begins, at which a decision on monetary policy will be made. Analysts predict that on Wednesday the interest rate will be reduced by at least 25 basis points. After the publication of positive US economic data, including data on US GDP growth, forecasts for a reduction in interest rates by 50 basis points weakened.

The pound continued to decline after falling 1% on Monday. New British Prime Minister Boris Johnson told Irish Prime Minister Leo Varadkar that he wants to remove the UK from the European Union by October 31, regardless of the agreement on the terms of this exit.

The GBP / USD pair dropped 0.5% to 1.2159, the EUR / USD pair changed to the position of 1.1144, and the USD / CAD pair rose 0.1% to 1.3178.

EUR / USD begins to recover

EUR / USD begins to recover

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Jim Anderson - Public Relations

Analysts from Bloomberg write that EUR / USD rose just above 1.1110 / 06 (the lows of April and May). Closing above the lows of March and mid-June at 1.1239 (55-days ma) and last week’s highs at 1.1285.

“While the pair is trading below this mark, it retains a negative attitude. The breakthrough of 1.1100 will make the target a support line for 2018-2019 at 1.0974 and then 1.0814 (78.6% Fib correction). Initial resistance is at 1.1285 (July 11 maximum) and 1.1372 (55-week ma).

 

Expectations of the future US – China agreement

Expectations of the future US – China agreement

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Erik Holm - Head of media

According to the Global Times, it is expected that in the last quarter of 2019, China and the United States will be able to come to a partial temporary trade agreement, but the main differences, such as the waiver of duties, government subsidies and disputes regarding intellectual property, will remain.

China has three requirements: the United States must waive duties on Chinese imports, the volume of purchases of American products by China must correspond to reality, and both parties must ensure an honest trade agreement.

In turn, the United States put forward eight conditions, including a reduction in the trade surplus of $ 100 billion during the current year and the same reduction over the next year.

Based on this, it can easily be concluded that the main differences between the parties remain, which will probably prevent them from coming to a full-fledged trade deal on an ongoing basis.