The Chinese yuan is looking to make gains at the end of the trading week as the central bank announced that it would be reintroducing a currency fixing method amid the yuanâs dramatic descent. The announcement comes after President Donald Trump accused China of being a currency manipulator.
On Friday, Reuters reported that the Peopleâs Bank of China (PBOC) will reintroduce a measure to ensure the currency market is stable during the yuanâs volatile trading against the US dollar and a basket of other currencies.
The move would modify the central bankâs methodology for remedying the yuanâs daily midpoint, arguing that the âpro-cyclical market sentimentâ that has led to the currencyâs decline prompted the PBOC to utilize a âcounter-cyclical factor.â
Experts contend that the PBOCâs objective is to prevent the herd mentality from accelerating in the forex market, something that might amplify capital outflows. Some analysts are going as far as deducing that it is a precautionary measure to lift the yuan ahead of a Chinese delegationâs upcoming meeting with its American counterpart in Washington next week.
With the PBOC interjecting itself into the forex market, it might give the Trump administration ammunition to the idea that Beijing is depreciating the yuan.
Earlier this week, President Trump told Reuters that China, as well as the European Union (EU), is a âcurrency manipulatorâ:
IÂ think China is manipulating their currency, absolutely. AndÂ IÂ think theÂ euro is being manipulated also. â¦ AndÂ what they are doing is making up forÂ theÂ fact that they are now paying aÂ lot forÂ â hundreds ofÂ millions ofÂ dollars, andÂ inÂ some cases billions ofÂ dollars â into theÂ United States Treasury â andÂ so theyâre being accommodated andÂ Iâm not, andÂ Iâll still win.
The Chinese government has repeatedly stated that it is not debasing the yuan, pointing out that the currency has appreciated for the last several years, up until its gradual descent 13 months ago. It also confirmed that it will not use the yuan as a tool in its trade war with the worldâs largest economy.
The USD/CNY currency pair tumbled 1.02% to 6.8079, from an opening of 6.8781, at 17:00 GMT on Friday. The EUR/CNY also slipped 0.32% to 7.9127, from an opening of 7.9392.
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