The Chinese yuan rebounded on Tuesday as global markets remained hopeful for a China-U.S. trade deal. The currency soared above 7 per U.S. dollar, marking a three-month high since early August.
According to CNBC, the benchmark of 7 against the U.S. dollar is a major issue for global markets and anything below it rocks markets in various ways. The rise above seven is critical in indicating that investors are rooting for a trade deal to be inked by the two of the world's biggest economies.
The reaction of markets and currencies around the world have largely depended on how China and the United States worked on settling a trade deal. Through the ups and downs over the month, stocks also fluctuated and rebounded.
With the two sides confirming that they are preparing the necessary work for potentially signing "phase one" of the trade agreement, the Chinese yuan is expected to stabilize in the coming weeks.
On the other hand, there is still concern about how the two countries will come to an understanding that will not batter markets and businesses further. Both sides have been firm on their stances about certain sectors.
For instance, Beijing said it seeks a sure commitment from Washington regarding the lifting of tariffs slapped on billions of Chinese goods. A person with knowledge of the situation who spoke on condition of anonymity due to the sensitivity of the matter, said the "deal is not balanced yet."
According to the South China Morning Post, there was mounting concern about whether the Chinese government made a lot of concessions while the White House has not been considerably responsive to Beijing's key issues that it presented during trade talks.
The source noted that there is still a lack in "mutual trust" between the two sides, adding that if U.S. President Donald Trump really wants a deal, the tariff issue should be settled first as well as the White House's label on China as a "currency manipulator."
So far, the U.S. is expected to revoke tariffs on Chinese goods, while China is expected to further open up financial markets and other business sectors to American investors who want to have a slice of the sprawling Chinese market.
If an official deal is announced this month, it is expected that economic growth in China will recover and will pull the local currencies with it, senior FX strategist at Rabobank, Jane Foley, said, as reported by Yahoo Finance.
Foley explained that markets believe the two sides are "clearly very close" to agreeing on "phase one." Investors are carefully watching developments in the much-anticipated trade deal.
