Is China weakening the yuan because of US trade talks?

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Photo: Reuters/ Jason Lee

Bloomberg this morning claims that China is depreciating its currency against the dollar in the lead-up to negotiations with the US economic team now visiting Beijing.

“The move in the fixing today is aggressive,” one currency strategist was quoted as saying. “China may want to weaken the yuan pre-emptively before the trade talks with the US, so that they have room to strengthen the currency”

That’s just bad arithmetic. During the past ten sessions CNY has lost 1.3% against the US dollar, but it has gained 1.8% against the Euro. China is managing its exchange rate against a broad basket of currencies, and the CNY exchange rate reflects the rise of the dollar against most other currencies in anticipation of Federal Reserve tightening.

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