China's currency fell to nearly 8-year lows today as the dollar climbs on hopes of Trump giving a green light to higher interest rates.
Yuan, one of the currencies expected to weaken with Trump's win along with Mexican peso, has been falling for the last 8 days. In the early trading session today, the Chinese currency broke through 6.86 yuan per $1, which is the weakest level since December 2008, reports Reuters. So far, the yuan has dropped by more than 5% this year.
Even though the yuan lost against the dollar, it is still stable in relation to the basket of currencies, said Huili Chang, an analyst at China International Capital. He added that this points at the "sharp contrast" between yuan's weakness of the last days and the currency's decline back in January when it fell against both the dollar and the currency basket.
The main reason for the yuan's biggest drop in the last 8 years is uncertainty around the future of the U.S.- China trade relationships, as Donald Trump negatively spoken about China during his pre-election campaign. Bloomberg reported that Trump accused China of currency manipulations by purposefully devaluing the yuan to make Chinese exports to the United States more attractive. The president-elect also threatened the country to set higher import tariffs of up to 45%, what would force China to cut its import to the U.S. by as much as 25%, say the experts.
"Trump has made his stance quite clear about China and it is definitely not a friendly outcome in terms of bilateral trade relations," an analyst Christy Tan told Bloomberg.
Reuters reported that People's Bank of China might be using the dollar's strength to release depreciation pressure on the yuan, allowing it to weaken against dollar without the bank taking action to support it. Chang added that the yuan is very unlikely to suffer from depreciation in the long perspective and set his forecast for 6.98 until the end of 2017.
"We haven't seen central bank intervention for quite some time and that's also why the yuan fell so much recently and broke through key levels easily," said a trader of one of the Chinese large banks, as reported by Reuters.
However, the analysts say that Beijing might still intervene in order to stop the yuan from falling too sharply, considering that Trump has not even moved in to the Oval Office yet.