Currency News: Tumbling USD/CNY Fueled By Multiple Factors
Currency News
CNY had experienced a consecutive seven-day strengthening from July 12 to 19, reaching an all-year high at 6.7450 CNY/USD. While CNY/USD hit 6.9059 earlier in May, and people were expecting the exchange rate to break 7, this seems now to be of no concern.
This trend is fueled by factors from both sides.
Following China’s release of 2Q17 GDP, beating the market consensus of 6.7% as well as U.S.’s 1Q GDP growth of 2.1%, the global capital market has shown great interest in China. Furthermore, evidence shows that the structure of China’s BoP is improving, the Current Account and Capital Account have, for the first time since 2015, achieved “double surplus”.
From the U.S. side, things seem to be going roughly. On July 12, Janet Yellen, the Chair of the Board of Governors of the Federal Reserve System, acknowledged that the too-low inflation level may hinder the Federal Reserve’s plan to increase interest rate. What’s more, there are also concerns that the investigation regarding Trump’s relationship with Russian government could potentially distract the U.S. president from enacting economic-friendly policies, such as the tax cut plan.
Apparently, the uncertainty towards the political environment of the largest economy in the world is dragging the USD in the global market, while, China, the second-largest economy, is enjoying the steadiness in both economic and political environment. The continuing weakening of USD to CHY will continue, unless stability takes place in the US.