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Trade war risks becoming a dangerous currency war as China weakens yuan the most in 2 years

Posted on Saturday, 21st July 2018 @ 07:23 PM by Text Size A | A | A

On the surface, the tit-for-tat trade war between the U.S. and China appears to be turning into a currency war.

President Donald Trump called out China and Europe Thursday and again on Friday for manipulating their currencies and keeping them low against the dollar. Hours after Trump’s comments were first aired on CNBC Thursday, the People’s Bank of China set the dollar’s reference rate at 6.7671 yuan, steering the currency 0.9 percent lower and weakening it the most in two years.

Trump followed his comments with a tweet Friday morning that criticized China, Europe and others for “manipulating” their currencies.

The dollar index, which measures the dollar against a basket of currencies, was more than 1 percent lower since Trump’s comments on Thursday. Strategists said the trade war appears to be moving toward a currency war, but whether it becomes one has yet to be seen.

“It’s starting to smell like it. We’ve had a trade war that’s been going on for awhile, and now we’re starting to hear talk about ‘you shouldn’t be doing that with your currency,” said Jens Nordvig, CEO of Exante Data.

The yuan has been weakening against the greenback both because of trade wars and due to the fact that U.S. interest rates are rising more than others, driving up the value of the the dollar.

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