WASHINGTON -- The U.S. Treasury Department on Monday removed China's designation as a currency manipulator for the first time in five months as the countries prepare to sign the first phase of a trade deal.
The deal to be signed Wednesday is expected to include language providing more clarity into China's currency practices, including a promise to refrain from competitively devaluing the yuan. The U.S. is easing its stance, as it believes the clause will lower the risk of currency manipulation by China.
After the designation was dropped, the yuan on Tuesday morning strengthened to a level not seen since July. The onshore yuan rose 0.24% in early trading to 6.8760 per dollar, its highest point since July 26, after the central bank set the strongest daily trading band in more than five months.
Washington designated Beijing a currency manipulator for the first time in 25 years in August amid a stalemate on trade. U.S. President Donald Trump had also hinted at possible economic sanctions should China weaken the yuan.
Many market watchers at the time thought China was allowing the yuan to weaken to promote exports and help offset punitive U.S. tariffs. Frictions over the issue are expected to settle down between the two countries after the partial trade deal and the removal of the currency manipulator label.
The U.S. Treasury submits a semiannual report to Congress reviewing exchange rate policies at major trading partners, usually in April and October. It had delayed the second report of 2019 to gauge China's stance.
The U.S. Treasury designates three criteria for designating a trade partner as a currency manipulator: a significant trade surplus with the U.S., a large current-account surplus, and persistent intervention in foreign exchange markets. China technically only met the first, but the Trump administration decided to take decisive action after the yuan hit its weakest point against the dollar in 11 years in August.