China allowed the yuan to fall to a five-month low

US, WASHINGTON (ORDO NEWS) — China admits a gradual weakening of the renminbi against a basket of major currencies due to the aggravation of political confrontation with the United States and difficult economic prospects, writes the South China Morning Post, citing analysts.

Beijing could also let the yuan weaken against the dollar if US President Donald Trump’s administration imposes tough sanctions on China for pushing Hong Kong’s new national security law .

The yuan fell to 7.1778 against the US dollar at the end of May, being close to the level at which it was trading in September, which was a minimum of 11 years. Subsequently, the exchange rate of the Chinese currency recovered. On Tuesday, the yuan was trading at 7.0750 against the greenback.

However, with respect to the basket of currencies of China’s main trading partners, the yuan was down 16 trading sessions in a row and reached 91.69, the lowest level in five months, compared with a maximum of 95.7 this year.

The depreciation of the national currency suggests that the People’s Bank of China allows the renminbi to weaken against the trade-weighted basket in order to support its exporters and the economy, as tensions between Beijing and Washington escalate, analysts say.

CEBM Group, China’s largest independent investment research company, said it is highly likely that the yuan could weaken more and break the 7.20 dollar mark if the Trump administration takes significant action against Beijing. Goldman Sachs analyst Danny Suvanapruti expects the yuan to drop to 7.25 per dollar in three months.

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