China Propping Up or Weakening Yuan During Trade Talks

WSJ: Yuan Weakness Revives Old Question: What Is China Doing With Its Currency?

In that time, the dollar has gained 3.2% against the euro and 1.7% versus the Japanese yen, outpacing its 1% advance versus the yuan.

The fact that the yuan has depreciated less against the dollar than its major peers means it has strengthened on a trade-weighted basis. The yuan has surged to a two-year high against a basket of its trading partners’ currencies, based on an official gauge’s latest reading on April 27.

That China isn’t letting the yuan fall as much against the dollar as the euro or yen suggests Chinese officials are mindful of how their currency policy appears to the Trump administration, said Robin Brooks, chief economist at the Institute of International Finance.

“My own gut [feeling], having watched this a while, is that at the moment, the way they’re treating the currency is as a bargaining chip in the negotiations with the Trump administration,” said Mr. Brooks.

Exactly as I predicted here years ago, eventually China's yuan policy would be boxed in politically. If the U.S. dollar keeps rising, does China accept greater deflation or will it play catch-up with the euro?

“The fact that it occurs over several days makes it very likely that something is going on,” he said. “They do seem a little bit keen to target weaker levels of the currency,” he added, referring to Chinese central bankers.

Market forces call for a weaker yuan. Political forces call for a stable yuan. One side has to give if the U.S. dollar keeps rising.