The Chinese yuan is struggling for direction against the greenback to kick off the trading week. While the yuan is flirting with a one-week high, US-China relations and monetary policy continue to weigh on the currency. Should the broader economy and financial markets rise, investors will inevitably pare their positions in the buck and transition that capital to other currencies. But with so much uncertainty, is this a certainty?

Last week, US and Chinese officials met in Alaska, marking the first high-level in-person meeting since President Joe Biden moved into the Oval Office. The meeting did not go as planned, with both sides taking shots at one another.

Beijing slammed the US on its human rights controversies and its ability to suppress economic growth, while Washington aired its grievances over Hong Kong, Taiwan, and cyberattacks. Relations between the two countries have never been as strained as they are today.

Secretary of State Antony Blinken told reporters are the meetings in Anchorage concluded:

We got a defensive response.

We wanted to share with them the significant concerns that we have about a number of the actions that China has taken, and behaviors exhibiting concerns, shared by our allies and partners.

And we did that. We also wanted to lay out very clearly, our own policies, priorities, and worldview. And we did that too.

On the monetary policy front, the People’s Bank of China (PBoC) injected $1.53 billion of reverse repurchasing agreements into the financial system to ensure sufficient levels of liquidity. The interest Rate for the seven-day reverse repos rose to 2.2%.

This comes PBoC Governor Yi Gang revealed that the central bank still has room to provide liquidity to the economy, noting that the nation’s total debt-to-GDP ratio is stable.

This will not only provide positive incentives for economic players, but also help create an environment less likely to spawn financial risks.

Yi and his colleagues have been sending mixed messages for months regarding the future of monetary policy. For now, it is a case of will-they-or-won’t-they when it comes to either tightening policy or maintaining its aggressive stance.

The PBoC also kept its prime lending interest rates unchanged, with the one-year Loan Prime Rate (LPR) at 3.85% and the five-year LPR at 4.65%.

The USD/CNY currency pair dipped 0.04% to 6.5066, from an opening of 6.5090, at 12:32 GMT on Monday. The EUR/CNY rose 0.16% to 7.7607, from an opening of 7.7773.

© AndrewMoran for Forex News, 2021. | Permalink | No comment | Add to del.icio.us
Post tags: China, EUR/CNY, GDP, Interest Rates, Joe Biden, PBoC, USD/CNY, Yi Gang, Yuan

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