SHANGHAI: China’s yuan fell to a two-week low against the dollar on Friday, dragged lower by signs of escalation in trade tensions between the world’s two largest economies after US President Donald Trump proposed extra tariffs on Chinese goods.
Trump told reporters in the Oval Office that the fresh tariffs on Chinese imports would stack on top of the 10% tariff that he levied on Feb. 4 over the fentanyl opioid crisis, resulting in a cumulative 20% tariff.
Trade tensions had been one of the key drags on the yuan during Trump’s first term as the president, when a series of tit-for-tat US-China tariff announcements drove the Chinese currency down more than 12% against the dollar between March 2018 and May 2020.
“The latest move by the US will likely trigger another round of tit-for-tat tariff escalations between the US and China, unless there is any last-minute deal or reprieve reached before March 4,” analysts at Commerzbank said in a note.
The onshore yuan weakened to a low of 7.2914 per dollar in morning deals, the softest level since February 13, before trading at 7.2870 at 0315 GMT.
Its offshore counterpart weakened past the psychologically important 7.3 per dollar level before changing hands at 7.2938.
To prevent rapid losses in the yuan, the People’s Bank of China (PBOC) on Friday lifted its midpoint rate, around which the yuan is allowed to trade in a 2% band, by 2 pips to 7.1738 per dollar, snapping four straight days of a weakening trend.
Currency traders said the slightly strengthened official guidance rate, albeit a broadly stronger dollar in global markets, suggested the central bank’s determination to keep the yuan steady.
China’s yuan inches lower, markets await US data and PBOC rate decision
And Friday’s fixing was 1,135 pips firmer than a Reuters’ estimate of 7.2873.
“According to our estimation, a total of 20% extra tariff from the Trump administration will drag China’s real GDP growth by 0.46 percentage point,” said Samuel Tse, economist at DBS.
“Despite the impact being believed to be manageable, the ongoing trade tension may prompt Beijing to perk up the stimulus measures.”
Traders and analysts said they will pay close attention to the annual gathering of the parliament next week, when Beijing will announce its key economic goals and agenda for this year.
American Dollar Exchange Rate