Wall Street faces tumult if China labelled an FX manipulator

(Oct 11): Wall Street is bracing for the prospect that the US uses this month’s semiannual foreign-exchange report to label China a currency manipulator, escalating the trade standoff between the two nations at a time when rising bond yields are already denting riskier assets.

The scenario is viewed as possible -- though not probable -- given the yuan has tumbled more than 9% against the dollar over the past six months, raising speculation that China has been deliberately weakening the currency. The US is concerned about the depreciation, and wants to make sure it’s not being used as a competitive devaluation, Treasury Secretary Steven Mnuchin said in an interview in Bali Thursday. If the White House formally imposes the designation on China, that would be the first time since 1994.

Such a decision would likely unleash fresh turmoil in global markets just as a surge in Treasury yields has helped spur the biggest selloff in US stocks since February. The strife is compounding weakness in the yuan, with bets mounting that 7 per dollar is around the corner, a level unseen since the financial crisis. With trade relations between Washington and Beijing souring, investors would be remiss to ignore the risks, according to Goldman Sachs Group Inc.

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