Yuan’s Sudden Weakness Spells Danger for Exporters Beyond U.S.

(Bloomberg) -- Little-noticed amid the storm of words in the U.S.-China trade dispute, the euro has rallied the most in almost a year against the Chinese yuan, hampering the region’s beleaguered exporters.

The seven-day surge in the European currency is the most dramatic since a similar period through early July 2018, dimming the appeal of the region’s goods for Chinese importers.

While the euro area isn’t the only economy caught in the crossfire of the U.S.-China trade dispute -- the yen’s gains versus the yuan have been even more pronounced -- it’s nonetheless a blow for the likes of carmakers, this month’s worst-performing group on the Stoxx Europe 600 Index.

And it’s a knock the euro area could do without. Economic data are just starting to hint that the bloc’s sharp deceleration is ending. Doubt remains, though, over the strength of German manufacturing and the fallout from Brexit. China is Germany’s third most important trading partner, according to data compiled by Bloomberg.

“If the renminbi were to fall by a substantial margin it would create huge ripples via the exchange rate, via exporters around the global economy including Europe,” said Jane Foley, the head of currency strategy at Rabobank International. While recent German data have been encouraging, “the possibility of a weaker renminbi is a threat to Europe."

The yuan has weakened to its lowest level in almost three months against peer currencies after the U.S. raised tariffs on Chinese goods and the two sides failed to reach a deal during talks in Washington. The Bloomberg replica of the CFETS RMB Index, which tracks the yuan against a basket of 24 trading partners’ currencies, has dropped for nine straight sessions.

Trade worries have weighed on European stocks. Luxury goods firms including LVMH and technology companies such as STMicroelectronics NV have the most negative correlation with the euro-yuan rate over the past 30 days, according to data compiled by Bloomberg.

Carmakers, facing another set of challenges as the U.S. prepares to impose levies on EU auto imports, have dropped. Daimler AG is down 10% in the last month, while Peugeot SA has declined 11.5%.

--With assistance from Anooja Debnath and Livia Yap.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editors responsible for this story: Jenny Paris at jparis20@bloomberg.net, Paul Sillitoe

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