Yuan pressure, forex volatility loom if Donald Trump re-elected: analysts
- China’s yuan has faced recent pressure due to the strength US dollar, with the result of November’s presidential election adding uncertainty
Uncertainty surrounding a possible win by Donald Trump in the US presidential election in November, as well as overall geopolitical tensions, could add volatility to the foreign exchange market and further pressure China’s yuan in the coming months, analysts said at a seminar organised by Renmin University of China on Wednesday.
“One important uncertainty in the second half of this year is the US presidential election,” said Xu Qiyuan, a senior research fellow at the Chinese Academy of Social Sciences, when commenting on the recent strength of the US dollar.
“If Trump wins, there may be expectations from markets that there would be a boost to the US economy,” Xu said, adding that it could also elevate the risk for US inflation, delaying interest rate cuts by the US Federal Reserve, which would maintain the large interest rate differential between China and the US.
“While I don’t think [a large China-US interest rate differential] should hinder China’s monetary policy, in reality, it is a bit of a restriction. This is why I think our fiscal policy really needs to be more proactive.”
A Renmin University report on Wednesday said that the yuan had remained relatively stable, trading between 7.1 and 7.25 against the US dollar in the first half of the year.
But the report also highlighted the large China-US bond yield gap and the risk that geopolitical tensions and trade conflicts could trigger volatility in the foreign exchange market in the second half of the year.
