US Treasury FX Report: China’s ‘manipulator’ designation removed – ING

Analysts at ING, point out that the US Treasury released its semi-annual FX report to Congress, and China's manipulator label was lifted which also represents a significant rapprochement in US-China trade relations.

Key Quotes

“We have not yet seen exactly what China has offered Washington in terms of new FX practices, but it is expected to be very similar to the commitments made in the forthcoming USMCA agreement.”

“That means a commitment to ‘avoid manipulating exchange rates or preventing effective balance of payments adjustment for trade gains’ and more transparent reporting of FX intervention. This latter part is critical and controversial. China may see the demand for FX intervention data as an infringement on its sovereignty. However, Korea acceded to similar demands last year and now publishes FX intervention data every six months – with a three-month lag. Let’s see whether China commits to a similar level of transparency in intervention activity.”

“Apart from registering the improvement in US-China relations, this report and any Chinese FX commitment suggests that it will be much more difficult to deliver a repeat of the massive FX intervention seen between 2005 and 2014, which effectively prevented more substantial renminbi strength and the effective balance of payments adjustment.”