"In pulling the yuan higher, it is not only looking to manage any decline, but also looking to contain any damage in terms of confidence in their stewardship of the Chinese currency and economy", said Michael Hewson, chief market analyst at CMC Markets.
Only US$50 billion of worth of US imports remain without tariffs on the Chinese side, fueling speculation China will need to resort to other methods of retaliation if Washington continues to ratchet up the pressure.
"Some estimate that a 10 percent appreciation of the dollar, relative to a trade-weighted current basket, reduces United States exports by about 1 percent of gross domestic product, or about $200 billion annually", he said.
The trade war with the U.S. has escalated in recent weeks, with President Donald Trump vowing to add 10 percent tariffs on another $300 billion worth of Chinese imports starting on September 1, extending punitive tariffs to almost every product.
US President Donald Trump on Tuesday (Aug 6) vowed to protect American farmers against China by signalling to provide further aid if needed, a day after Chinese firms stopped agricultural purchases and Beijing threatened more tariffs on US farm products.
Chen said the trade dispute between China and the U.S. has prompted Chinese enterprises to accelerate their pace of innovation to break external restrictions in many fields such as semiconductors and new materials, as well as expand their global presence at a notable pace. Exports rose 12.6 percent to 1.64 trillion yuan, while 1.08 trillion yuan was imported from the European Union, up 8.2 percent, putting the trade surplus with the European Union up 22.2 percent to 559.65 billion yuan.
With this latest tariff, varying levels of taxes and tariffs have been applied to almost all Chinese goods entering the United States, including now clothing and consumer goods such as mobile phones and laptops. USA farmers, a key political constituency for Trump, have been among the hardest hit in the trade war. Now, Trump has announced another round of tariffs on the roughly $300 billion of Chinese goods that had not already been targeted by American levies.
The prospect of snap elections in Italy brought down shares across Europe, while London's FTSE 100 index and the pound sank after Britain reported its economy shrank in the second quarter, the first contraction in seven years. The country's trade surplus with the U.S. shrank to $27.97bn in July from June's $29.2bn. -China trade and market disputes amid growing anxiety about a downturn in the world economy. Shortly after, the US Treasury Department issued an official statement designating China a "currency manipulator ', although China does not fulfil the three criteria the Treasury normally uses to determine whether a country is a 'currency manipulator". It said the yuan's decline was driven by market forces. Other major data over the coming week is expected to show a loss of momentum in July, reinforcing views that Beijing will need to roll out more support measures.
A weaker yuan also might disrupt Chinese efforts to shore up cooling economic growth.