The Chinese yuan weakened against the US dollar this week, rising back above the key seven threshold. The yuan is slumping on reports that the central bank might be hitting the pause button on monetary easing as the world’s second-largest economy recovers. With the People’s Bank of China (PBoC) not being as aggressive this month, could these reports be accurate? If they are, what does this have in store for both the yuan and the rest of the economy?

According to Reuters, the PBoC does not believe it should ease monetary policy any further than it has already. Although it plans to maintain an accommodative approach to support the economic recovery, sources tell the newswire that you should not anticipate any additional measures.

Policymakers have reportedly made the decision after witnessing a stronger-than-expected rebound in activity in the second quarter. The PBoC does not want to see any negative side effects of being ultra-aggressive, fearing that it could spark a debt crisis and another housing bubble. But the central bank is setting aside any emergency measures amid global economic uncertainty and a US-China spat.

This comes a week after the PBoC made it clear that it does not intend to take any more extraordinary action in the second half of 2020, pointing to sufficient economic growth.

Meanwhile, the PBoC skipped another open market operations facility on Friday through the reverse repurchasing agreement. According to an online statement, the PBoC believes the banking system maintains a reasonable level of liquidity at present, despite approximately $29 billion of reverse repos maturing on Friday.

Beijing and Washington have renewed their tensions this week. The US government ordered China to close its consulate in Houston, prompting Beijing to retaliate by ordering the US to close its consulate in Chengdu. Secretary of State Mike Pompeo also slammed the Chinese government by warning that Washington will no longer accept China’s attempts to usurp global power.

Next week, industrial profits data and manufacturing and non-manufacturing purchasing managers’ index (PMI) readings will be released.

The USD/CNY currency pair rose 0.19% to 7.0173, from an opening of 7.0041, at 19:01 GMT on Friday. The EUR/CNY advanced 0.54% to 8.1664, from an opening of 8.1237.