We calculate the screening charge density distribution due to a point charge, such as that of a positive muon ($mu^+$), placed between the planes of a highly anisotropic layered metal. In underdoped hole cuprates the screening charge converts the charge density in the metallic-plane unit cells in the vicinity of the $mu^+$ to nearly its value in the insulating state. The current-loop ordered state observed by polarized neutron diffraction then vanishes in such cells, and also in nearby cells over a distance of order the intrinsic correlation length of the loop-ordered state. This in turn strongly suppresses the loop-current field at the $mu^+$ site. We estimate this suppressed field in underdoped YBa$_2$Cu$_3$O$_{6+x}$ and La$_{2-x}$Sr$_x$CuO$_4$, and find consistency with the observed 0.2--0.3 G field in the former case and the observed upper bound of $sim$0.2 G in the latter case. This resolves the controversy between the neutron diffraction and $mu$SR experiments. The screening calculation also has relevance for the effect of other charge impurities in the cuprates, such as the dopants themselves.
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