The US Treasury Department on Tuesday refrained from labeling any of its major trade partners a “currency manipulator” in its semi-annual FX report to Congress. This includes China, whose currency has depreciated 8.1% against the dollar over the last 12 months amid an increasingly bitter trade dispute with Washington.

But behind the headline reprieve, several aspects of the report suggest a growing focus in Washington over currency practices:

* Delayed not absolved. While not labeled a “manipulator,” China was singled out for particular criticism. It remains on the US watch list status and its “history of facilitating an undervalued currency” was noted. Its “exceptionally large and growing bilateral trade imbalance” was linked to both a “persistently weak” yuan and domestic “market-distorting forces” like state subsidies and non-tariff barriers.

* A wider lens. The Treasury expanded the report to cover its 21 largest trading partners, up from 12, by widening the examination to all nations with an annual bilateral goods trade exceeding USD 40bn. This new list accounts for some 80% of all US goods trade.

* Lowering the bar. The Treasury also lowered the threshold for what constitutes “unfair currency practices”. The threshold for a current account surplus to be considered material was reduced to at least 2% of GDP (from 3%). "Persistent, one-sided interventions” in currency markets in six out of the previous 12 months are now considered manipulation (vs. eight previously). Nine countries now make up the US monitoring list, including new additions Singapore, Vietnam, Malaysia, Ireland and Italy. India and Switzerland were removed after making progress.While the US many not have singled out any "manipulators," its actions linking currencies to broader trade disputes could complicate negotiations. The new report follows a US Commerce Department proposal last week to penalize countries deemed to have undervalued their currencies. Our base case remains that a US-China trade deal will be struck later this year after tension-filled talks. We don’t think China will pursue much more yuan depreciation, and forecast USDCNY at 7 and 6.8 over three and six months, respectively (vs. 6.91 currently).