Yuan at 7 Is China’s Warning Shot to Trump
Beijing is showing it won’t be used as a pawn in the president’s campaign for lower rates and a weaker dollar.
No winners here.
Photographer: Xaume Olleros/Bloomberg
In the zero-sum game of a currency war, politicians nudge their central banks to cut borrowing costs so as to push down the exchange rate. U.S. President Donald Trump wants more reductions from the Federal Reserve and a weaker dollar. China is showing him why such a strategy will be self-defeating.
On Monday, the yuan blew past 7 per dollar for the first time since 2008 and sank to a record low offshore in Hong Kong, even though the central bank has been conspicuously absent in the world’s race to zero interest rates. On the contrary, the People’s Bank of China has been talking about keeping home prices stable, a signal that policy makers won’t be easing. The 10-year yield spread between China and the U.S. has widened to 1.3%, the highest since January 2018. In theory, that should weaken the dollar – not the yuan.