Tuesday 7 January 2020 10:59 am

Chinese yuan set for best day in six months as risk appetite returns

The Chinese yuan was set for its best day in more than six months this morning after investors’ appetite for risk returned and as traders await the signing of a “phase one” trade deal between China and the US.

China’s yuan – the unit of its renminbi currency – had risen 0.57 per cent to 6.934 per dollar by 8.30am. If the yuan holds its gains, it will have achieved its biggest daily rise since June.

Read more: China cuts banks’ reserve ratios to spur economy

Risk sentiment returned to markets today as investors appeared to decide concerns about a ramping up of tensions in the Middle East were overblown.

They sold off safe-haven assets such as US 10-year bonds – on which the yield rose to 1.812 per cent – and bought assets considered riskier, such as Asian currencies.

“Markets were in a happier mood on Tuesday,” said Russ Mould, investment director at AJ Bell. Yet he added: “The market always finds something to worry about, so Brexit or even US-China trade relations could quickly return to the agenda if the Middle East issues fade.”

Another driver of the yuan was the long-awaited signing of a “phase one” trade deal between the US and China, which is expected to take place on 15 January.

The world’s two biggest economies have been locked in a trade war for over a year, leading to hundreds of billions of dollars of goods being tariffed and rattling markets.

A more expensive yuan will please US President Donald Trump, whose government last year officially accused Beijing of currency manipulation.

Julian-Evans Pritchard, senior China economist at Capital Economics, said that official exchange reserve figures released by China today suggested that Beijing “continued to refrain from direct foreign exchange intervention last month on the back of easing trade tensions”.

Read more: US trade representative: Phase one of a China deal is ‘totally done’

The Chinese government has in recent months taken a series of steps to boost the economy, such as lowering bank reserve ratios.

“With outflows moderating – and pressure on the renminbi subsiding – the People’s Bank [of China] has little reason to worry about the impact of monetary easing on outflows and the currency,” Evans-Pritchard said.