The Chinese renminbi plunged beyond 7 per dollar for first time since 2008, as Beijing asked their state-owned firms to suspend U.S. crop purchases, in retaliation against Donald Trump’s latest announcements.
A currency war against the dollar is the latest move by Chinese authorities to tackle the trade war sparked by Trump. A battle which, until now has not produced the desired result by Washington.
A global currency war against China is not a nice scenario for the U.S., as the greenback is already hitting new highs against the euro and the pound. A ‘super-dollar’ is the last thing that Trump desires to increase U.S. exports and trade deficit.
But, up to now, he obtained just the opposite effect. Even the Federal Reserve president Jerome Powell said the last week 25-Basis point cut by the central bank does not mean the beginning of a cycle, a hawkish declaration which forced ForEx traders to sell-off the euro against the dollar.
Therefore, under these economic circumstances, the most likely scenario is one where the super-dollar could become even stronger. U.S. authorities seem not to have many tools to stop the weakening of yuan, euro and pound by now. The trouble for the U.S. is that Chinese officials knows it very well.