A glimmer of hope for improvement in Sino-US relations emerged today after reports that President’s Trump and Xi would meet at the G-20 summit and that the U.S. Treasury will avoid labeling China an FX manipulator. The glimmers were enough to send the offshore Yuan surging from 6.94 overnight to as low as 6.87 in hours.

But were the rumors true, and was China willing to reciprocate to what appeared to be an olive branch by the Trump admin?

Moments ago we got the answer.

With China, and specifically it currency, now the fulcrum security in defining not only daily emerging market sentiment, but also telegraphing Beijing’s day-to-day feelings toward the US president, traders were keenly focused on what the PBOC’s Friday yuan fix would be, especially after two days of central bank fixes that were below the average analyst consensus.

Well, moments ago the PBOC announced that the CNY would be fixed some 0.03% weaker to 6.9120; a 22 pip cut from Thursday’s 6.9098 fix and the ninth straight day of weaker rate. More importantly, the fixing was sharply lower than the average of sellside forecasts of 6.9051 by 17 traders and analysts in a Bloomberg survey, with Bloomberg adding that the fixing was at the biggest discount to Bloomberg forecast since early February.

Needless to say, the PBOC’s surprisingly low fixing, which took place not only on the wrong side of 6.90 – the central bank’s former “red line” – but also far below where the CNH was trading on Friday, had one purpose: to send Trump a message that while China may not be labeled a manipulator by the Treasury’s in Monday’s report, the PBOC no longer had any concerns about the optics of actually doing just that: allowing its currency to slide below levels that were previously seen as taboo not only by Beijing but also by Washington.

Not surprisingly, with this latest subtle declaration of snubbing and/or currency war, the offshore yuan has been a one-way street, tumbling from 6.87 just before the fixing to 6.905 as suddenly any goodwill Trump may have earned with the announcement of the G-20 meeting and “no manipulation” declaration, was vaporized by China’s all too clear response to Trump that it is willing and capable to defect from the prisoner’s dilemma, even when Trump – finally – is willing to “cooperate”

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