China 'won't devalue currency' despite trade war fears

China has insisted it will not devalue the yuan, as the country’s escalating trade war with the US continued to take its toll on currencies.

US President Donald Trump has already imposed selected tariffs on China and last Friday said he is ready to extend them to all $500bn of goods exported to America. China has hit back with tariffs of its own.

The growing row between the two countries has bolstered the dollar, with the yuan falling sharply against the greenback. It has now lost more than 7% since the end of the first quarter, and US Treasury Secretary Steven Mnuchin said last week that Washington was reviewing the yuan’s weakness.

But at a briefing on Monday, Chinese Foreign Ministry spokesman Geng Shuang said the yuan was being driven by market forces, adding: “China has no intention to use means like the competitive devaluation of its currency to stimulate exports.”

Neil Wilson, chief markets analyst at Markets.com, said: “China’s yuan slipped to a two-year low last week, shortly after Trump laid into Europe and China for manipulating their currencies. China’s currency has been on the slide for a while as investors shy away due to trade wars and because of widening interest rate differentials. But it’s also the case that the central bank is not acting to support the currency by stepping in as it might have done in the past.

“Clearly Beijing has decided that it cannot go head to head with the US on tariffs, but it can use its currency as a powerful weapon to negate the impact of tariffs.”

In a research note, Oxford Economics analysts said: “The world’s two biggest economies are squaring up to each other over trade. Lack of communication, strong ideological beliefs and basically non-negotiable strategic ambitions have brought us to the brink of a trade war that – if it materializes – will significantly exacerbate a global economic slowdown.”

As at 1700 BST the dollar was trading at 6.7986 yuan, having gained 0.43% during the session.