USA - CHINA

Amid fears of US trade war, China supports Yuan

Johannes Eisele, AFP | This file photo taken on August 8, 2018 shows bundles of 100 yuan (14.6 USD) notes at a bank in Shanghai.

China’s state banks have been active in the onshore yuan forwards market this week, using swaps to tighten dollar supply and support the Chinese currency, four sources with knowledge of the matter told Reuters.

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China stabilised its currency Tuesday, suggesting it might hold off from aggressively letting the yuan weaken as a way to respond to US tariffs on Chinese goods. That came a day after Beijing sent financial markets tumbling by allowing the currency to fall to an 11-year low against the dollar.

A weaker yuan can help neutralize US tariffs on Chinese goods by making them more price-competitive on international markets. The Chinese currency declined to 7.0562 to the dollar before strengthening back to 7.0264.

The U.S. Treasury Department on Monday officially declared that China improperly manipulates the yuan's value just hours after President Donald Trump accused China of currency manipulation. American officials have long complained that a weak yuan makes China's export prices unfairly low, hurting foreign competitors and swelling Beijing's trade surplus.

The designation could open the way to possible new penalties on top of tariff hikes already imposed on Chinese goods in a fight over Beijing's trade surplus and technology policies.

Things were calmer on Tuesday. After falling 3% Monday, the S&P 500 index rose 1.3%   its first gain in seven days.

(FRANCE 24 with REUTERS, AP)

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