China Central Bank Signals Renewed Action to Support the Yuan

(Bloomberg) — China’s central bank signaled that it’s taking action to support the yuan as trade tensions with the U.S. show no signs of ending soon.

Starting this month, banks resumed using an adjustment, known as the counter-cyclical factor, in the daily pricing of the currency against the dollar to counter the bias toward a weaker yuan, the People’s Bank of China said late Friday. China had suspended use of the factor in January, a move interpreted to mean that policy makers had grown more comfortable with the yuan’s trajectory after several months of gains against the dollar.

The PBOC said Friday that the factor “plays a positive role in keeping the yuan rate at a reasonable equilibrium level.” The strengthened in late trading to cap the first weekly gain since early June.

Pessimism about the yuan’s value against the greenback lingers, as a trade war between the world’s two biggest economies is primed to escalate after officials failed to make progress in two days of negotiations in Washington. A new round of tariffs could come as soon as early September, after the countries slapped import taxes on $50 billion of each other’s goods.

The renminbi, as the currency is officially called, has stoked the ire of President Donald Trump after a losing streak against the dollar of more than one month. Earlier this week, Trump rekindled his campaign accusations that Beijing is engaging in currency manipulation, long one of the most sensitive friction points between the two countries.

“Following the end of the U.S.-China trade talks this week, the resumption of the counter-cyclical factor to strengthen the yuan, or prevent further weakness, could be a gesture from the Chinese authorities to the U.S. side,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. Trump “has expressed his frustration at the weak yuan, and the subject of exchange rates was likely raised at this week’s meeting.”

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