China’s yuan currency tumbled Monday, breaching a level long described by market watchers as a “line in the sand” and feeding fears of an intensifying China-U.S. trade war. In turn, that sparked a global equity-market selloff that saw U.S. stocks suffer their biggest one-day decline of 2019.What happened? China’s currency weakened early Monday, trading at more than 7 yuan per U.S. dollar for the first time in more than a decade. In offshore trading, the yuan USDCNH, +0.
“We think China’s moves today signal that they are prepared to use a variety of measures and push these negotiations well into 2020,” Christopher said, in a phone interview. “There’s not going to be an easy deal here for the U.S.” Chinese officials didn’t try too hard to dissuade that interpretation, with the People’s Bank of China saying in a statement that the currency’s decline was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.”China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.
“This looks more like a warning shot than active devaluation, with the yuan’s fall a reflection of worsening economic fundamentals and rising trade tariff risks,” Mark Haefele, chief investment officer for global wealth management at UBS, wrote in a note. “For policy makers in China, arbitrarily defending the 7.0 mark amid these pressures represents a moral hazard, and one which only worsens the longer it is left to build up.
A much weaker yuan would also inflict pain on Chinese importers, consumers and, especially, businesses that have borrowed in U.S. dollars, they said. He also said there may be “some realization” that the U.S. could add to tariffs if the currency is used to offset the impact of the levies — a policy that would be more effective than direct U.S. currency intervention. White House economic advisor Larry Kudlow last month said that intervention to weaken the U.S. had been ruled out, though the continued U.S.-China tensions has led analysts not to rule out the prospect.