Chinese Yuan Pauses Rally Amid Escalating Sino-US Tensions

The Chinese yuan retreated from its best level in more than two years to kick off the trading week, driven mostly on escalating Sino-US geopolitical and trade tensions. But the pullback was capped by better-than-expected exports in November, signaling that the world’s second-largest economy is recovering at a healthy pace.

The US government is set to slap fresh sanctions on at least one dozen Chinese officials over their roles in disqualifying elected opposition legislators in Hong Kong. The latest round of sanctions could be announced as early as Monday.
Experts warn that this could also be the start of several anti-China policies that President Donald Trump could sign off on as he winds down his presidency, leaving his successor in a tough spot once he arrives in the White House.
Chinese Foreign Ministry spokeswoman Hua Chunying stated that if the reports are accurate Beijing would take countermeasures. She stopped short of the response would be, saying in a statement:

If the reports are true, I believe you can imagine China’s position. We firmly oppose and strongly condemn U.S. interference in China’s internal affairs and sanctions on Chinese personnel under the pretext of Hong Kong. We have expressed our positions to the U.S. side many times and made legitimate and necessary responses.

Last week, President-Elect Joe Biden revealed that he would not immediately remove tariffs on China because he wants to first develop a “coherent strategy” among allies in Asia and Europe. Biden told The New York Times:

The best China strategy, I think, is one which gets every one of our — or at least what used to be our — allies on the same page. It’s going to be a major priority for me in the opening weeks of my presidency to try to get us back on the same page with our allies.

The news on sanctions affected the yuan and placed a sour tone in the broader financial markets to start the trading week.
But the bearish sentiment was offset by strong trade numbers. According to the General Administration of Customs, China’s trade surplus widened to $75.42 billion, up from $37.18 billion from the same time a year ago, representing the largest trade surplus in 30 years.
Exports popped to an all-time high amid strengthening global demand, surging 21.1% year-over-year to $268.07 billion. China shipped off more personal protective equipment (PPE), electronics products, and Christmas supplies. Imports came in below the market forecast, increasing at an annualized rate of 4.5% to $192.65 billion. Beijing imported more copper, iron, steel, soybeans, and rubber.
Meanwhile, the People’s Bank of China (PBoC) reported that foreign exchange reserves rose to $3.178 trillion last month, up from $3.128 trillion in October. The median estimate was $3.15 trillion.
The USD/CNY currency pair rose 0.12% to 6.5395, from an opening of 6.5316, at 12:06 GMT on Monday. The EUR/CNY advanced 0.12% to 7.9274, from an opening of 7.9179.
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