European leaders are intensifying pressure on China over currency manipulation concerns as German Chancellor Merz demands dialogue on monetary and foreign exchange policy. According to Rabobank’s Michael Every, Merz argues the Chinese yuan is artificially undervalued by 20 to 30 percent and is calling for Beijing to allow the currency to float more freely in international markets.
The challenge comes amid mounting frustration over persistent trade imbalances between Europe and China, with European officials linking the undervalued yuan directly to Chinese export competitiveness. A significantly undervalued yuan makes Chinese goods cheaper on global markets while pricing European exports higher for Chinese buyers, exacerbating the trade deficit.
This diplomatic pressure adds a new dimension to US-China tensions and could signal coordinated Western action on currency policy. Traders should monitor CNY volatility and potential policy responses from Beijing, which has historically resisted external pressure on yuan management.
FXnCO Insight
Watch for CNY volatility and potential safe-haven flows into EUR and USD if China-Europe currency tensions escalate, with European industrial exporters facing immediate pressure from the widening competitiveness gap.
Source: FXStreet