On Friday, just hours after clips from Donald Trump's interview with CNBC's Joe Kernen betrayed the extent to which the President is "not happy" with the fact that the policy divergence between the Fed and the PBoC is causing the Chinese currency to "drop like a rock", China weakened the yuan fixing by the most in two years.
That clearly indicated the PBoC is more than willing to let the market push the currency lower in the near-term as a weaker currency helps cushion China's economy from the trade frictions. At a certain point, authorities in Beijing will have to worry about capital flight, but apparently, they believe measures put in place following the 2015 devaluation are sufficient to prevent a mass exodus and so, they're prepared to let the currency weaken further.
The fixing news was not great for risk appetite, but overnight, things turned around with traders flagging a policy bank selling dollars."The big bank offered the dollar at 6.81, and stopped selling after the yuan trimmed its loss to trade near 6.79", two traders told Bloomberg, adding that "the bank’s selling activity spurred profit-taking among other lenders, magnifying the impact."
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