The USD/CNH pair continues its losses for the fourth day in a row, hitting a 13-month low of 7.0782 during Asian hours on Wednesday. The value of the pair declines as the US dollar comes under pressure, with weak economic data in the US boosting expectations of a rate cut from the Federal Reserve in December.
The CME FedWatch tool indicates that markets now estimate more than an 84% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points at its December meeting, up from the 50% chance that markets had priced in a week ago.
The US Census Bureau released US retail sales on Tuesday, which rose 0.2% month-on-month in September, slowing from the 0.6% increase in August, indicating more cautious consumer spending. The Retail Sales Watch Group fell by 0.1%, versus expectations for a rise of 0.3% and the previous growth of 0.6%. Separately, the Conference Board reported a sharp deterioration in household sentiment, with consumer confidence falling 6.8 points to 88.7 in November from 95.5 in October.
The US Producer Price Index (PPI) remained steady at 2.7% y/y in September, which is in line with expectations and the August reading and suggests that inflationary pressures have stabilized. Core Producer Price Index fell to 2.6% from 2.9%, missing expectations of 2.7%.
China’s central bank set a slightly stronger daily fixed rate for the Chinese yuan on Wednesday, reinforcing its steady approach to managing currency movements amid changing global financial conditions. The daily fixing acts as the midpoint around which the yuan can trade, allowing a 2% move in any direction in the local market.
A stronger fixation is often seen as an indication of policy intentions, either to guide the yuan’s movement or to limit excessive volatility. While Beijing maintains a firm grip on the exchange rate regime, the latest adjustment underscores its focus on maintaining orderly market conditions.
According to two traders familiar with the matter, China has purchased at least 10 shipments of US soybeans, worth about $300 million, in deals signed since Tuesday. The unusually high volume comes just one day after the two presidents held a phone call, and represents a continuation of China’s recent surge in soybean buying amid a thaw in US-China trade relations.
Frequently asked questions about the US-China trade war
In general, a trade war is an economic conflict between two or more countries due to extreme protectionism on the one hand. It implies the creation of trade barriers, such as tariffs, which lead to counter-barriers, escalating import costs, and thus the cost of living.
The economic conflict between the United States and China began in early 2018, when President Donald Trump placed trade barriers on China, claiming unfair trade practices and intellectual property theft from the Asian giant. China has taken retaliatory measures, imposing tariffs on several US goods, such as cars and soybeans. Tensions escalated until the two countries signed the US-China Phase One Trade Agreement in January 2020. The agreement required structural reforms and other changes to China’s economic and trade system and pretended to restore stability and trust between the two countries. However, the coronavirus pandemic has taken the focus away from the conflict. However, it should be noted that President Joe Biden, who took office after Trump, maintained the tariffs and even added some additional duties.
The return of Donald Trump to the White House as the 47th President of the United States has sparked a new wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump’s return, the US-China trade war will presumably pick up where it left off, with tit-for-tat policies impacting the global economic landscape amid disruptions in global supply chains, leading to lower spending, especially investment, and directly feeding into CPI inflation.
