US Could Roll Out Currency Pact With China As Part Of Limited Trade Deal: Reports

In the wake of a South China Morning Post article which suggested, among other things, that due to a complete lack of progress during deputy-level trade talks on Monday and Tuesday, Chinese Vice Premier Liu He is planning on departing Washington on Thursday night after having spent less than a day talking to Bob Lighthizer and Steve Mnuchin, US officials rushed to contain the damage.

The White House is “not aware” of any change to Liu He’s travel plans, the administration said. “It’s an extremely fluid situation. As of 8pm, White House negotiators’ information was that Liu would depart Friday”, CNBC’s Kayla Tausche tweeted, adding that “a principal” then told CNBC that Friday is an “open question”.

“One possibility”, Tausche went on to say, is that [vice-minister for finance] Liao Min stays and Liu leaves”.

Read more: Markets Shudder As ‘No Progress’ Made In Deputy-Level Trade Talks, China To Leave Washington Thursday Night

Shortly thereafter, Fox’s Edward Lawrence cited sources close to the Chinese team in reporting that “they are planning on cutting the talks short and leaving after one day” – so, on Thursday, in keeping with the original SCMP reporting. “The US Team may find that out tomorrow”, Lawrence went on to suggest.

Fast forward about an hour, and Bloomberg said the US is considering a currency pact with Beijing as part of an interim deal.

The FX agreement was actually struck earlier this year, but never saw the light of day after talks broke down in May.

Now, the Trump administration may roll it out as part of the rumored “early harvest” deal, that would see both sides agree to strike a limited accord, while putting off the thornier issues of forced tech transfer, IP theft and state subsidies until later.

The offshore yuan erased the entirety of the swoon associated with the downbeat SCMP article to trade higher. US equity futures were similarly whipsawed.

The US labeled China a currency manipulator in August after Beijing let the yuan breach the psychologically important 7-handle to dramatic effect across global markets.

The PBoC countenanced the slide through 7 after Trump broke the Osaka truce on August 1, partly out of spite for Jerome Powell, who put up a “disappointing” performance at the post-FOMC press conference on July 31.

Trump has struggled to reconcile allegations that China deliberately pushes the yuan lower (in an effort to offset the tariffs) with the fact that Beijing has, during both August of 2018 and 2019, gone to great lengths to prevent the currency from sliding “too” far, “too” fast. That of course doesn’t mean the PBoC didn’t let the yuan fall in order to cushion the blow from the tariffs, it’s just to say that if the market were allowed to dictate where the yuan trades, it would be much weaker than ~7.15.

Any sign of conciliation on the currency front would be welcome news for a market that has, since July of 2018 when Trump began to ramp up his tweets about Fed policy and the dollar, engaged in perpetual hand-wringing about the extent to which the trade war has morphed into a currency war and beyond.

Read more in our full currency war archive

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