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The Chinese currency, yuan has an exchange rate of 7 against the US dollar, an unprecedented level since the global financial crisis of 2008.
Market monitoring closely the movements of the yuan mainly because this currency is an essential element of the trade war between the United States and China.
The president of United States Donald Trump insists that China holds under the yuan unjustly to boost its exports.
Beijing denies that this is true and seeks to keep it stable.
Who is right?
TENDANCE DOWN
The first thing to remember is that the Chinese currency does not do it. it works like the others that are freely traded.
China's central bank sets a benchmark every day and this number directs markets towards the trend that should follow yuan .
By the end of October, it had fallen to 7, that is, you could already buy almost seven yuan with a US dollar (the rate foreign exchange was Thursday 6.97).
And although that in 2017, he had already experienced a sharp decline with the arrival of Trump in power, the last time that a US dollar was traded against 7 yuan dates back to the 2008 global financial crisis.
We are now approaching this level again.
The rate is a good sign of the path taken by Yuan : Down.
According to several badysts, among whom Julian Evans-Pritchard of the consulting firm Capital Economics the Chinese currency "will be under pressure in the coming months" and should reach value of 7 yuan for one dollar
Here we explain some of the reasons.
CHINA FRENA, UNITED STATES GROWING
The weakness of yuan is due in part to the strength of the dollar, which is explained by confidence in the US economy . and the fact that the US Federal Reserve is gradually increasing interest rates.
But it is also because the Chinese economy is slowing down.
It increased by 6.5% in the third quarter of 2018, the slower rate since 2009.
According to Capital Economics this difference in economic fortunes between the two countries will result in a "divergence of monetary policy ", which generally results in movements of the controlled exchange rate of China .
COMMERCIAL WAR
Concerns about the trade war with United States China also pushes the currency down.
In fact, the currency fell sharply after Trump increased pressure against China a few months ago.
American officials commented on how the exchange rate of China should be treated as part of the trade war also putting pressure on the yuan.
But there is an irony.
A lower yuan can help boost China's growth by making its exports more attractive to the rest of the world.
But if Beijing allows it yuan continues to weaken, risking the anger of Trump and intensifying the trade war .
US President and President Xi met in November to try to resolve the conflict, but any other weakness of the yuan could derail the talks and make matters worse for China .
Still, according to badysts they say that the authorities [Beijing] have no choice but to let the yuan continue to weaken, especially if Trump fulfills his promise to impose tariffs on all exports of China .
If this happens, growth in in China could further slow down, threatening the country's political and economic stability.
This is what the government in China wants to avoid. at all costs.
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