The US labels China a currency manipulator

The near-term impact will likely be limited but this is a clear negative for trade negotiations.

Shortly after the renminbi’s sharp depreciation on Monday, the US Treasury Department labelled China a currency manipulator. This is the first time in 25 years that the US government has designated a country as a currency manipulator.

According to the US Treasury Department, the decision was triggered by the perceived lack of action by the PBoC to resist the renminbi depreciation. Given that the US government has already imposed (or promised to impose) significant tariffs on virtually all Chinese imports while sanctions on some Chinese technology  companies are also already in place, the likelihood of additional aggressive action being taken by the US against China is low in the near term.

However, the decision to label China a currency manipulator, which opens the door for a wide range of additional actions, is still a major escalation of the on-going US-China trade tensions. As a result, the likelihood of reaching a trade agreement may have been reduced further.

-Following the recent renminbi moves and the US government’s response, we have decided to revise down our forecast for rmb against the dollar to CNY7.1 from CNY6.95 previously for all time horizons.

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