The Chinese currency is falling but … is this bad news?



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HONG KONG (CNNMoney) –

The Chinese currency is down again. But will the price be low?

The yuan depreciated by almost 1% against the US dollar on Thursday and continued its decline on Friday, reaching its lowest level in more than a year. It has now fallen more than 8% in the last three months amid a global trade dispute and concerns about an economic slowdown in China.

Analysts said that the most recent fall of the yuan came after China's central bank would indicate that it was willing to accept a weaker currency.

A declining currency could help China's huge export industry cope with new US tariffs because it makes Chinese products cheaper for buyers than they pay in dollars. This could spur an economy that has recorded its slowest growth rate in almost two years – up from 6.7% – in the second quarter.

Unlike the dollar or the euro, the yuan does not float freely against other currencies. . In contrast, China's central bank – the People's Bank of China – helps guide the currency by setting a daily trading range.

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Analysts at the BMI research firm say that the yuan weakens because investors expect the bank to tighten its monetary policy "in order to support an economy facing multiple difficulties", including a trade war with the United States. 19659003] The United States and China have imposed duties on billions of dollars worth of goods, respectively, and US President Donald Trump threatens to attack more Chinese exports.

A weaker yuan increases the risk of increased exports. trade tensions with the Trump government, which has repeatedly accused China of keeping its currency artificially low to support its huge exported industry

The latest declines led Trump to complain in an interview with CNBC on Thursday that the yuan "was falling like a rock "against the dollar.

"Our motto goes up, I must tell you that it's a disadvantage," added Trump.

According to analysts, it is unlikely that China will use the weaker yuan as a weapon in the trade war. They highlight the chaos caused in the Chinese and global markets by the sharp declines of the currency in 2015 and 2016.

"That China deliberately pursues a policy of depreciation, the question will be more and more in the spirit Investors as the fall deepens, "writes Friday in a statement the strategists of Societe Generale

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D & # 39; Other factors weigh on the yuan. Given the strength of the US economy, the Federal Reserve should continue to raise its interest rates. This makes it more attractive for investors to have US dollars, which drives them to sell other currencies.

"Gravity is doing its job again as monetary policy diverges further between the United States and China," said Margaret Yang, an analyst at CMC Markets, an investment firm

[19659003] Qi Gao, a currency analyst at Scotiabank, expects the currency to fall by almost 2%. against the dollar. It was then that he would feel compelled to stop the decline of the yuan, he added.

It is an act of delicate balance for decision makers.

If the yuan falls too fast, it could lead China out of the fact that investors are losing confidence and are looking to exchange it for assets in dollars and other currencies.

"The Chinese authorities will probably prevent the currency from moving very strongly in any direction," said Hannah Anderson, global strategist at JPMorgan Asset Management.

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