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Gloves are off. China’s central bank doesn’t have the authority alone to let the yuan break 7. The move had to be signed off by the top leadership. Weakening the yuan is a clear response to Trump’s new tariff threats.
Acute market people all remember how hard PBOC had intervened to prevent yuan from breaching the 7 threshold. Once, when some data provider quoted it beyond that level, PBOC issued a denial within minutes--and had to write up a report to the leadership explaining what happened.
Still, the PBOC won't allow a free fall of the yuan. That's not in China's interests, either. It's a tough balancing act for the monetary authority. Only one thing is certain for now: capital controls will only get tighter in China.
And yes, greater market forces, no denying that. But market forces are only allowed when they suit the purposes. A managed float currency regime -- "managed" being the operative word.
