As US-China trade tensions escalate, markets brace for more uncertainty

The People’s Bank of China (PBoC) allowed China’s yuan (CNY) to weaken by more than 2% to $0.1408 on Monday; letting it fall to its lowest point since March 2008. PBoC set yuan reference rate at 6.9225 and attributed the weakening to trade protectionism, but said it is confident the yuan exchange rate will stay fundamentally stable. A weaker yuan theoretically helps local manufacturers offset the tariffs.

Currency manipulation is one of the primary tools (among tariffs, quotas, and subsidies) used to protect the economy from ‘unfair’ foreign competition. China’s historically tight currency control has played a major role in growing its export-oriented economy and led to it being the country most often accused of currency manipulation.