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'Major violation': Trump reacts to China's tumbling yuan

Emily McCormick

President Donald Trump slammed China for allowing its yuan to weaken below a key level Monday morning.

“It’s called ‘currency manipulation,” Trump said in a Twitter post. “Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

Trump’s remarks come after China earlier on Monday let the yuan weaken past seven per U.S. dollar (USDCNY=X) for the first time in more than a decade, in an apparent retaliation amid an escalating trade war with the U.S. Global equities tumbled as the yuan skidded lower.

Last week, Trump unexpectedly announced that he would be slapping a 10% tariff on $300 billion worth of Chinese goods beginning September 1, after representatives from both sides met for in-person trade talks for the first time in more than two months.

Previously, the People’s Bank of China had stepped in to prevent the yuan from dropping below the psychological level of seven per U.S. dollar, “no doubt mindful of the headlines it would create,” said Julian Evans-Pritchard, senior China economist for Capital Economics.

A weaker Chinese yuan would make goods from the country cheaper and more attractive to foreign buyers, potentially widening the yawning U.S. trade deficit even further. Recently, Trump has demanded a weaker U.S. dollar to make America more competitive with other countries, which he claims have unfairly devalued their currencies against the U.S. dollar.

Trump has called on the Federal Reserve to lower its benchmark interest rate, with easier monetary policy seen as likely to weaken the dollar’s relative valuation. However, Fed Chair Jerome Powell said in public remarks earlier this year that U.S. central bankers “certainly don’t target the level of the dollar,” and that the Treasury Department “is responsible for exchange rate policy – full stop.”

Trump has also repeatedly criticized China for allegedly undervaluing its currency, and said during his presidential campaign that the country should be called a currency manipulator. Earlier this year, the Trump administration decided not to label China – or any other country – a currency manipulator, but placed the country on a watch list for potentially unfair currency practices.

In a statement Monday, the People’s Bank of China denied intentionally weakening the yuan as a retaliatory move against the U.S., saying it would “not engage in competitive devaluation” or “use the exchange rate as a tool to deal with external disturbances such as trade disputes,” according to a translation.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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