The yuan falls to its lowest levels ever outside China with the increase in the trade war

The price of the yuan in external transactions has dropped to the weakest level after China has ease its strict grip on the currency amid a significant escalation in the trade war with the United States. The price of the Chinese Yuan abroad fell 0.4% to 7,3779 against the dollar at 10:30 a.m. before the start of trading in New York, which recorded the lowest level ever in immediate transactions. Earlier in the day, the Chinese Volksbank set the daily reference exchange rate of its currency at 7.2038 against the dollar, which is the worst since September 2023. This is the first time the reference price has exceeded the 7.20 level since President Donald Trump won the election in November. Investors regard this level as an unexplained red line that reflects the intentions of the authorities against the currency. China defends the attraction of its exports. The value of the yuan is seen as one of Beijing’s options to improve the attractiveness of its exports, forming an important growth car that increases the pressure due to the tension. But it is not easy to make a decision that enables a sharp decline in the yuan exchange rate as it can lead to increasing pessimistic expectations for the economy, negatively affecting capital flow, provoking the United States and reducing the possibilities to keep commercial negotiations. On the other hand, maintaining the exchange rate is artificially high that can weaken exports and exacerbate the negative impact on an economy with difficulty. The possibility of postponing the accumulated pressure for the decline in the price of the yuan could lead to increased volatility in the financial markets. Becky Liu, director of the strategy for the total economy in China at Standard Chartrad Bank, said that the reference exchange rate “could indicate the transformation of the foreign exchange system in China to the managed reduction instead of setting a maximum of 7.35 for the immediate yuan against the dollar. Relaxation that includes the imposition of similar customs definitions on all US goods, and restrictions on the export of rare soil minerals. In the exchange rates. Despite their incompatibility, an increasing group of analysts, a sharp decline in the price of the yuan expects in the near future. The Wells Fargo & Co Bank expects the possibility of the value of the yuan up to 15% in two months. Jefferies Financial Group, that there is a 75% possibility that Beijing will reduce the value of the yuan, and in the event that the Chinese bank of the Chinese people decide to do so, it will probably do a significant reduction, for example by 20% or 30%. ” But most analysts expect a quiet rate, as the reduction of the currency can aggravate the displacement of capital flow, and the investor’s confidence in Chinese assets weakens. Even if pessimism begins to spread, the Chinese bank has many instruments to reduce market volatility. Previously, the central bank used tools to stop the lower yuan, such as adjusting the volume liquidity in the foreign exchange market and issuing external effects. “We expect the Chinese People’s Bank to allow further flexibility, up and down, in foreign exchange rates to control the market that varies after the day of the announcement of customs tariffs. However, the possibility of the sharp drop in the value of the yuan is excluded from the risks of capital flow. The Chinese people will prefer to retain the stability of the exchange.