The Trump administration has withdrawn its designation of China as currency manipulator, as the two economic superpowers move closer to a trade deal.

The decision to drop the designation comes ahead of the announcement of a trade deal between the two sides, expected on Wednesday. The trade dispute has rocked US manufacturing and caused an economic slowdown in China.

The treasury department made the move in its currency report on Monday afternoon, its first public analysis since the US labeled Beijing a “currency manipulator” last August.

That designation, the first the US had made against China since 1994, escalated the long-running trade dispute between the two countries with Beijing accusing the US of “deliberately destroying international order” and undermining world stability.

Senior Chinese officials arrived in Washington on Monday to finalize the “phase one” trade agreement, which will be signed at the White House.

Last month, the US and China agreed to a partial trade deal with Beijing pledging to purchase up to $200bn of American products over the next two years, including agricultural goods from the US’s hard-hit farmers.

Donald Trump has long argued that China undervalues its currency in order to game international trade, charging the country was perpetrating one of the “greatest thefts in the history of the world”.

But the dispute has hurt both sides. On Monday the car giant Ford said its China sales had fallen for the third year in a row in 2019, dropping to less than half of what it sold at its peak in 2016.

Wednesday’s agreement is expected to contain a promise from both sides that they will not use their currency to unfair advantage.