Chinese Yuan Weakens As Manufacturing Activity Contracts

Jun 01,2019 10:14   Source:Earnforex

Chinese 100-yuan notesThe Chinese yuan is weakening against major currency rivals at the end of the trading week, driven mainly by disappointing economic data, as well as the lingering trade war with the Americans. The yuan has had a rough second quarter against the US dollar, but it has mostly gained against the euro so far this year. China has had a mix of highs and lows this year – both on data and trade.

According to the National Bureau of Statistics (NBS), the manufacturing Purchasing Managers’ Index (PMI) declined to 49.4 in May, down from 50.1 in April. This is significant because anything below 50 indicates a contraction in activity. Meanwhile, the non-manufacturing PMI remained unchanged at 54.3 this month.

Next week, investors will home in on the Caixin China General Manufacturing PMI, the Caixin Composite PMI, and the Caixin Services PMI. The market is forecasting an expansion for all three indexes, though the expectation is that they will be little changed from the previous month.

Suggesting that the two sides are not anywhere close to striking a new trade agreement, the Chinese leadership accused the White House of engaging in “naked economic terrorism.” Chinese Vice Foreign Minister Zhang Hanhui told reporters that Beijing opposes the utilization of trade sanctions, tariffs, and protectionism.

We oppose a trade war but are not afraid of a trade war. This kind of deliberately provoking trade disputes is naked economic terrorism, economic homicide, economic bullying.

Markets are beginning to discuss the potential fallout if the yuan falls below 7 against the greenback. Analysts say that this could lead to significant economic costs for China and its companies. Since financial regulators have started hinting at preventing it from happening, there are three things that could happen: President Donald Trump continues to accuse Beijing of devaluing the yuan, there could be a surge in capital outflows, and the federal government might impose capital controls.

The USD/CNY currency pair rose 0.05% to 6.9051, from an opening of 6.9018, at 19:34 GMT on Friday. The EUR/CNY soared 0.37% to 7.7147, from an opening of 7.6820.


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