Yuan Dips as Hopes Dwindle for a 2019 US Trade Deal

Alan Penny

21 November 2019

3 min read

China forex news

  • Political tensions between China and the United States rise
  • Yen strengthens on the back of trade deal woes
  • US dollar weakens after Fed minutes were released

Thursday saw the Chinese yuan dip to its lowest level in three weeks in onshore trading. This is due to concerns that China’s stumbling economy might suffer another setback if US tariffs aren’t rolled back. However, there are fears that the first phase of the US-China trade deal will not be signed in 2019.

… there are fears that the first phase of the US-China trade deal will not be signed in 2019.

Reuters heard from sources near the White House that there is little likelihood of further progress on the trade deal this year. This has led to weakening investor sentiment, resulting in safe-haven assets getting a boost.

The Japanese yen strengthened on the back of this news. At the time of writing, it was trading at 108.54 against the US dollar. Analysts believe the currency will continue to strengthen if President Donald Trump signs the Hong Kong human rights’ bills into law.

Hong Kong human rights bill could further derail the deal

The situation between China and the United States is also tense on the political front. This is mainly due to the US passing legislation concerning the protests in Hong Kong.

Hong Kong has been dealing with more and more violent protests for over six months. Protesters are speaking out against China trying to meddle in their affairs, despite having been promised autonomy.

The US House approved the Hong Kong Human Rights and Democracy Act with 417 votes for and one against. The Senate passed the bill with a unanimous vote on Tuesday.

Essentially, the bill requires the State Department to check on Hong Kong at least once a year. The goal is to establish whether Hong Kong still has sufficient autonomy to maintain the special US trading consideration. This is what helped turn Hong Kong into a global financial center.

The legislation would also require the sanctioning of officials who violate human rights in Hong Kong.

Beijing is certainly displeased with the act. China’s Global Times claimed the bill should actually be called the Support Hong Kong Violence Act since it openly supported rioters. They stated that the bill “tarnished sacred terms” such as democracy and human rights.

Another bill passed by unanimous vote in the House. This legislation bans the export of some forms of munitions used for crowd control to the Hong Kong police force.

President Trump has 10 days, excluding Sundays, to sign the bills unless he decides to veto them. Expectations are that the president will sign the bills, which could exacerbate political tensions between the US and China.

US dollar weakens after Fed releases minutes

The increasing uncertainty over trade developments has also affected the strength of the US dollar. The US dollar slipped after the Federal Reserve released minutes from the policy meeting that took place in October.

The minutes revealed that Fed officials were in agreement that the policy stance would remain as it was. Changes would be made only if they received information that would require them to reevaluate the state of the economy and their outlook.

However, they also stated they could see the downside risks for the economy, which was why they decided to pass a rate cut. They claimed that reduced exports and business investment due to weak global growth and increasing uncertainty over trade developments fueled their decision.

Written By
Alan Penny

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