USD/CNH hits 13-month lows below 7.0800 as Fed rate cut bets increase
- USD/CNH marked a 13-month low of 7.0782 as the US Dollar struggles, as softer data reinforce the likelihood of a Fed rate cut in December.
- CME FedWatch Tool indicates pricing in more than 84% odds of a 25-basis-point Fed rate cut in December.
- China has bought at least 10 cargoes of US soybeans, valued at about $300 million, in deals concluded since Tuesday.
USD/CNH extends its losses for the fourth consecutive day, reaching a 13-month low of 7.0782 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) comes under pressure, with softer United States (US) economic data boosting expectations of a Federal Reserve (Fed) rate cut in December.
The CME FedWatch Tool suggests that markets are now pricing in more than 84% odds that the Fed will cut its benchmark overnight borrowing rate by 25 basis points (bps) at its December meeting, up from 50% probability that markets priced a week ago.
The US Census Bureau released US Retail Sales on Tuesday, which rose by 0.2% month-over-month (MoM) in September, slowing from the 0.6% increase seen in August, indicating more cautious consumer spending. Retail Sales Control Group declined 0.1%, against the expectations of a 0.3% rise and the previous 0.6% growth. Separately, the Conference Board reported a sharp deterioration in household sentiment, with Consumer Confidence sliding 6.8 points to 88.7 in November from 95.5 in October.
The US Producer Price Index (PPI) remained steady at 2.7% year-over-year in September, matching expectations and August’s reading and suggesting that inflationary pressures have stabilized. Core PPI eased to 2.6% from 2.9%, undershooting forecasts of 2.7%.
China’s central bank set a slightly stronger daily Chinese Yuan fixing on Wednesday, reinforcing its steady approach to managing currency movements amid shifting global financial conditions. The daily fixing acts as the midpoint around which the Yuan can trade, allowing a 2% move in either direction in the onshore market.
A stronger fixing is often viewed as an indication of policy intent, either to guide the Yuan movement or to curb excessive fluctuations. As Beijing maintains a firm hand on the exchange-rate regime, the latest adjustment underscores its focus on preserving orderly market conditions.
According to two traders familiar with the matter, China has purchased at least 10 cargoes of US soybeans, worth roughly $300 million, in deals signed since Tuesday. The unusually large volume comes just a day after the two presidents held a phone call, and marks a continuation of China’s recent surge in soybean buying amid a thaw in US-China trade relations.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh 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 back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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