China’s currency, the yuan, slipped slightly against the U.S. dollar on Friday, even after a long-awaited phone call between U.S. President Donald Trump and China’s leader Xi Jinping. Many around the world were hoping the conversation would calm down the tense relationship between the two biggest economies on the planet. But the phone call left many key disagreements unsolved, especially around trade and Taiwan.
The leaders talked for over an hour. During the conversation, Xi Jinping told Donald Trump to back off from harsh trade actions that have caused trouble in the global economy. He also warned the U.S. not to take strong steps on Taiwan, a sensitive subject for China.
Even though the call seemed positive on the surface, it didn’t offer any solid agreements. The two leaders only briefly discussed access to important materials and rules around exporting technology. Tariffs—extra taxes on goods traded between the two countries—were not cut or even addressed clearly. This left investors unsure about whether the two nations are really moving closer to a full deal or just talking without making big decisions.
Investors Still Wary as Yuan Dips
Following the call, the Chinese yuan showed small losses. As of early Friday morning (0243 GMT), the onshore yuan, which is traded within mainland China, was down 0.07% at 7.1837 per U.S. dollar. Meanwhile, the offshore yuan, traded outside of China, was also down by about 0.06% to 7.1808. Even though the call happened and some might expect markets to feel better, that didn’t seem to be the case here.
Gary Ng, a senior economist at Natixis, explained that investors are still skeptical. He said that while more high-level talks might raise the chances of a U.S.-China deal, many investors believe both sides are just buying time to deal with urgent issues. He also mentioned that the call failed to provide reassurance about cutting tariffs and only briefly addressed access to important materials and controls on technology exports. This means there is no certainty about what kind of deal might come, and it might only be a partial one given the many issues between the two countries.
A trader at a foreign bank commented that the talk itself should have lifted market sentiment, but Trump’s erratic policies make it hard to convince investors. Wang Zhuo, partner of Zhuozhu Investment in Shanghai, agreed that Trump’s fickleness has made such talks less and less meaningful to the market. However, Wang also noted that direct communications between the two leaders help remove some misunderstandings.
Small Shifts in Currency Policy
Before markets opened on Friday, China’s central bank, the People’s Bank of
China, set the official midpoint for the yuan at 7.1845 per dollar. This rate was the strongest since May 26 and was 90 pips better than financial experts had predicted. In China, the yuan is allowed to move 2% up or down from this midpoint each day.
This move by the central bank shows some effort to support the currency, even while outside factors continue to pull it down. Still, the small drop in the yuan shows that markets were not fully impressed by the phone call between Trump and Xi.
Trade talks between the U.S. and
China had already stalled after their last face-to-face meeting in Geneva a month ago. At that time, both sides agreed to temporarily roll back most of the tariffs imposed since April. But tensions rose again after President Trump accused China of violating that deal.
While the phone call was a sign that both leaders are still in communication, the yuan’s dip and the market reaction suggest that words alone have not yet solved the deeper problems between the two countries.
