The Chinese government devalued the yuan to fall below its 7-to-1 ratio with the US dollar for the first time in a decade Monday. A weaker currency could soften the blow the United States has dealt China with its tariffs.
The cheaper yuan ignited fear on Wall Street that the United States would respond with even higher tariffs, prolonging the standoff with China and potentially weakening the global economy. Investors are particularly concerned that the Trump administration could try to devalue the dollar, sparking a currency war that could weaken Americans’ purchasing power.
“Risks of Trump intervening in foreign exchange markets have increased with China letting the yuan go,” wrote Viraj Patel, FX and global macro strategist at Arkera, on Twitter. “If this was an all out currency war – the US would hands down lose. Beijing [is] far more advanced in playing the currency game [and has] bigger firepower.”
President Donald Trump once again called China a currency manipulator on Monday, saying the yuan devaluation was a “major violation.” Trump has long attacked China for its currency policy, even though the Treasury has refrained from officially labeling the country a currency manipulator.