Chinese Yuan weakens on Lira Crisis, Rallying Stocks

The  Chinese yuan is weakening on  Monday, hurt by  the  Turkish lira crisis and  a  rallying stock market. Investors have also combed through recent remarks by  the  People’s Bank of  China (PBOC) about refusing to  use the  currency as  a  tool in  its trade dispute with the  US.

Despite the  domestic traders overreacting to  start the  trading week, sending the  Shanghai Composite Index tumbling 1.9%, the  index pared most of  its losses, trading down just 0.3%. The  reversal was fueled by  foreign investors buying cheaper yuan-pegged shares. Amid Turkey’s financial crisis, global investors have been selling off emerging market holdings, but China has been able to  resist the  selloff.
Last week, the  US government announced that it would be doubling its tariffs on  Turkey’s steel and  aluminum exports. This sent the  lira reeling, shedding 20% on  Friday and  another 10% on  Monday. President Donald Trump touted the  trade levies as  a  way to  put pressure on  the  lira and  boost “our very strong dollar!”
In  its second-quarter monetary policy report released on  Saturday, the  PBOC promised to  incorporate macro-prudential policy into its “counter-cyclical tools” to  bring stability to  the  Chinese yuan. The  PBOC also lowered its daily fixing to  its lowest level since May 2017, reimposing a  measure that makes it more expensive to  bet that the  yuan will diminish against the  US dollar. Analysts do expect the  PBOC to  impose additional measures should the  yuan dip further.
The  central bank also confirmed that it will not use the  currency “as  a  tool to  deal with trade disputes and  other external disturbance.” With tit-for-tat retaliation by  the  world’s two largest economies, the  Chinese economy has been sluggish, and  the  yuan has depreciated as  a  result. Officials do not foresee an  end to  the  trade conflict as  reports suggest Beijing is preparing the  national economy for  a  long-term trade battle.
The  USD/CNY currency pair rose 0.68% to  6.8879, from an  opening of  6.8469, at  17:49 GMT on  Monday. The  EUR/CNY advanced 0.49% to  7.8507, from an  opening of  7.8124.

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