This week the yuan surpassed the 7,0000 handle and continued to climb. Generally, the Chinese currency isn’t a popular trade because it’s officially kept within a trading band. For the first time since last year, the government has allowed this band to move above a psychologically and technically important level.
The weakness of the yuan can be seen as a sign that the expected boom after lifting covid restrictions is not here. In December, the currency gained against the US dollar because traders expected a substantial growth in the Chinese economy. However, Q1’s results have been disappointing and the latest PMIs indicate that the industrial sector is in contraction. However, it appears that this is a larger story.
The dollar remains king
The Chinese Ministry of Finance has attributed the latest movement in their currency to the strength of the dollar. The dollar appreciated throughout the week, despite ongoing political debates over raising the ceiling on debt. While politicians make dire warnings about the US potentially falling into default, no one in the markets actually thinks that’s a real possibility. There is a possibility that economic uncertainty will surround the…
