Yuan Turns More Volatile, And The Yen Thrives On The Ongoing Trade War Between China And The U.S.
The China-U.S. trade war continues to affect the global market with major currencies. Chinese Yuan experiencing huge volatility while the Japanese Yen gains courtesy of its safe-haven status.
The Yuan has been experiencing a lot of volatility ever since US President Donald Trump decided to implement additional tariffs against China. Consequently, the Chinese currency dropped in value to more than 7 Yuan per US dollar, a move that ended up shielding Chinese traders from the effects of the hefty tariffs.
The USD/CNY currency pair kicked off this week’s trading session on a high with the price rallying to its peak on Monday at 7.0699 before turning bearish.
The U.S. responded by accusing China of currency manipulation for letting the Yuan surpass the key level at 7 Yuan per dollar.
The Chinese currency dropped to the lowest point that it has reached in more than ten years. President Trump's announcement that he was not ready to strike a trade deal with China.
The Japanese Yen has been benefiting from the rocky U.S-China relationship
The China-U.S. trade war has negatively affected the performance of most major currencies, but the Japanese Yen continues to gain traction. This is because the Yen is one of the few global currencies that are considered safe-haven currencies. These currencies tend to turn bearish while other currencies get on the bear train.
The Yen is currently an attractive investment to many traders who want to shield themselves from losing value through currency decline. At the same time, investors have been shying off from investing in currencies such as the Yuan and even the US dollar due to the ongoing trade volatility and global market uncertainties.
The Yen has for the past one week been growing stronger against the U.S dollar. The USD/JPY chart has been overall bearish, which indicates that the Yen has been gaining, especially after Trump announced the extra tariffs.
The USD/JPY peaked at 105.5798 on Monday’s trading session before falling to a day low of 105.0498.
Trump announced that he would slap China a 10% tariff on Chinese imports worth $300 billion from September 1. The announcement marked the end of the temporary cease-fire that the two countries had agreed on.
Although the US President accused China of currency manipulation, the People’s Bank of China’s director Zhu Jun described the currency change as a natural reaction to Trump’s announcement regarding the tariffs.
"The labeling...violates basic, common economic sense and international consensus, and is unconvincing," stated Zhu.
The impact of the trade war continues to be felt even in the U.S. For example, investment banking firm Goldman Sachs slashed its U.S. economic growth forecast.
The company also warned that China and the U.S. would likely not reach a trade deal before next year's presidential elections. It also means that the probability of a recession will continue to increase, and the trade war will likely continue to affect the markets for an extended duration.