SHANGHAI: China’s yuan bounced off a more than three-month low against the dollar on Wednesday, lifted by firmer-than-expected official midpoint guidance, pointing to authorities’ growing discomfort over the currency’s recent, rapid depreciation.
The yuan has skidded since Donald Trump’s presidential re-election last week. As part of his pitch to boost American manufacturing, Trump has said he will impose tariffs of 60% or more on goods from China.
The proposed tariffs, as well as other policies such as tax cuts, are seen as inflationary and likely to keep US interest rates relatively high, buoying the dollar and pressuring currencies of its trading partners.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1991 per dollar.
Though that was the fixing’s weakest level since Sept. 2023, the midpoint rate was 314 pips firmer than a Reuters’ estimate, the largest such largest deviation since August.
“Markets are likely to read into this as discomfort from authorities at the pace of CNY depreciation. This has put pressure on USDCNH as well”, which fell 0.1% following the release of the fix, said Citi analysts in a note to investors.
The offshore yuan traded at 7.2288 yuan per dollar, up about 0.2% in Asian trade.
Ken Cheung, chief Asian FX strategist at Mizuho Bank, said “It showed that 7.35 per dollar remains a key support level for the onshore yuan.”
China’s yuan steady
Spot yuan opened at 7.2251 per dollar and was last trading 170 pips firmer than the previous late session close at 7.2185 as of 0254 GMT, and 0.27% weaker than the midpoint.
The onshore yuan touched the lowest level since Aug. 2 on Tuesday.
Trump’s proposed tariffs, as well as other policies such as tax cuts, are seen as inflationary and likely to keep US interest rates relatively high, buoying the dollar and pressuring currencies of its trading partners.
During Trump’s first presidency, the yuan weakened about 5% against the dollar in the initial round of US tariffs on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
The yuan is down 1.4% against the dollar this month, and is 1.6% weaker so far this year.
The dollar’s six-currency index was 0.075% lower at 105.9.
American Dollar Exchange Rate