The Chinese yuan has fallen 0.2% to 6.9038 against the US dollar, coming close to the key 7 level amid growing doubts over the scope of an economic recovery in the country this year. The yuan’s decline is in response to concerns about the slow pace of China’s economic recovery and the potential impact of external factors such as the ongoing US-China trade war.
The Chinese yuan is the official currency of the People’s Republic of China and is managed by the country’s central bank, the People’s Bank of China (PBOC). The PBOC sets a daily midpoint reference rate for the yuan, which is allowed to trade within a narrow band of 2% above or below the reference rate. However, in recent years, the PBOC has allowed the yuan to trade more freely in response to market forces.
The yuan’s recent decline is in response to a number of factors, including concerns about the slow pace of China’s economic recovery. The Chinese economy has been hit hard by the Covid-19 pandemic, which led to a sharp contraction in the first quarter of 2020. While the Chinese economy has rebounded strongly since then, there are concerns that the pace of the recovery may be slowing down.
Another factor that is contributing to the yuan’s decline is the ongoing US-China trade war. The two countries have been engaged in a protracted trade dispute since 2018, which has resulted in tariffs on billions of dollars’ worth of goods. While the two countries signed a phase one trade deal in January 2020, tensions between the two countries remain high, with the US accusing China of failing to live up to its commitments under the deal.
The yuan’s decline is significant because it is approaching the key 7 level, which is seen as a psychological barrier for the currency. In August 2019, the yuan fell below the 7 level for the first time in over a decade, which prompted the US to label China a currency manipulator. While the PBOC has since intervened to prop up the yuan, the currency’s recent decline has raised concerns that the PBOC may not be able to prevent it from falling below the 7 level again.
In conclusion, the Chinese yuan has fallen close to the key 7 level against the US dollar, reflecting concerns about the slow pace of China’s economic recovery and the ongoing US-China trade war. While the PBOC has intervened to support the yuan in the past, the currency’s recent decline has raised concerns that the PBOC may not be able to prevent it from falling below the key 7 level again
