The Chinese yuan experienced a slight increase in offshore and onshore strength. However, the Shanghai Composite Index decreased. Analysts then suggested that trade optimism would be expected this year after officials noted that phase two of the China-US trade deal has commenced.
China's currency strengthened by 0.1 percent this week, reported Reuters. Apart from the slight growth in value, Chinese stocks fell last Thursday after the finalization of phase one of the China-US trade deal. After the agreement was confirmed, analysts claimed that investor confidence did not totally recover, as financial markets remain wary over phase one of the trade deal.
It was revealed that there were still many disagreements between China and the US regarding the tariff rates and has remained unsolved despite high hopes before phase one finalization. Despite the doubts, the Chinese Yuan is now 6.888 per dollar. The improvement was blamed on the central bank's improved policy implementations and a more accommodating guidance rate.
Last Thursday, the People's Bank of China (PBOC) also set the midpoint on the currency's daily trading band at 6.8807 per dollar. The value is its strongest since the second half of last year and is slighter stronger than yesterday's 6.8845.
According to the senior China economist that the BNP Paribas in Beijing Jacqueline Rong, one of the phase one China-US trade deal encompassed a currency pact, which reflected the market forecasts. She also said that the currency agreement involved the autonomy of each party regarding their respective monetary policies.
The said agreement supposedly alleviated financial market concerns about China unchanging its currency ranges. However, China was compliant in the trade deal and made necessary changes to its own monetary policy to make phase one of the trade deal push through.
At present, the Chinese Yuan is considered as a market-driven currency after the signing of phase one of the trade deal. According to a trader involves with a Chinese bank in Shanghai, the developments of the trade deal may not affect China's currency policy altogether.
The said trader shared that the PBOC may implement a counter-cyclical factor when it comes to the midpoint fixing of the Chinese Yuan. The same policy was said to mitigate the price swings of the currency when the market adjusts.
According to the head of the PBOC's monetary policy department Sun Guofeng, China's reserve requirement ratio would be set at an appropriate level. He then announced that further cuts are highly unlikely as of the moment. Moreover, he added that the real interest rates in China's market had been falling significantly along with the funding costs of China's small firms, reported FX Street.
