The US dollar (USD) wrapped up its after-hours session just a tad higher versus most of its counterparts late Thursday, but it was the Chinese yuan (CNY) that stole the show after China's central bank fixed the currency and elevated it on a stronger position.
This week's moves signaled the PBOC is comfortable with currency weakness while also demonstrating that China isn't prepared to let the yuan go into the kind of downward spiral that in 2015 spurred capital outflows.
China does have a history of keeping the yuan weak to boost exports, although in recent years it's actually worked to prop up the currency.
The Treasury Department on Monday named China a currency manipulator for the first time since 1994.
The trade war is weighing on the global economy. Analysts said there was no "shock value" from printing a 7-mark, as this happened Monday when the forex market hoisted spot CNY above the 7 and the Chinese central bank did not avert such upward move. The yuan was the world's dullest currency only a few weeks ago, even as tensions with the US on trade suddenly escalated. The yuan was headed for a loss against the US dollar of about 1.6% for the week, following Monday's drama when it crossed the key 7 per dollar level for the first time since the global financial crisis.
While central banks globally are adopting a more dovish outlook, investors remain anxious.
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But relations remain tense between the US and China, which have engaged intermittently in talks to address President Donald Trump's complaints that China does not trade fairly. "And in a certain extent, it has helped smoothing market sentiment to avoid panic". It burned through $1 trillion in reserves before it steadied.
"Interest rate differential was an important factor leading the yuan depreciation against the dollar a year ago as yields between China and the United States shrunk sharply", he said.
With the four-year anniversary of China's shock devaluation approaching on August 11, currency traders are adjusting to a new reality without the line in the sand that has helped cushion declines since 2015.
The yield gap between Chinese and US benchmark 10-year government bonds stood at 134 basis points on Friday afternoon, compared with a low of 28 basis points hit in November.
China's currency "should remain flexible and market-determined", which would mean "less intervention", he told reporters.
As of 0830, the offshore yuan was trading at 7.0795 per dollar, nearly flat on the day.