Yuan Weakens After US Sanction Headlines

USD/CNH pops higher on Monday after initially trending sideways. The pair trades at 6.5235 after initially opening at 6.5134. The headlines that the US is preparing new sanctions against Chinese officials putting some upward pressure on the pair.

• The US is reportedly preparing to impose sanctions on at least 14 people as outgoing President Trump looks to assert his authority before leaving office in January. The move will likely be viewed as a retaliatory gesture after Beijing ejected four opposition members from its legislature after China's parliament bestowed new powers to tackle dissent on its authorities.
• Meanwhile the PBOC fixed the yuan at 6.5362, around 7 pips stronger than sell side estimates, and injected a net CNY 50bn via 7 day reverse repos, Last week the bank drained for four consecutive days after unexpectedly injecting CNY 200bn at the start of the week.
• This is a key week for data from China, several notable releases this week are widely expected to show the economy is recovering strongly to end the year. Credit growth and FDI is expected to have picked up in November, while trade data will likely show another strong reading. Inflation data later in the week could bring yuan watchers back down to earth, a potential deflationary CPI reading would be the first in over a decade.