China reinforced its support for the yuan by setting a stronger-than-expected daily reference rate, signaling its commitment to currency stability despite escalating trade tensions with the United States.
On Wednesday, as onshore markets reopened after the Lunar New Year holiday, the People’s Bank of China (PBOC) set the yuan’s fixing at 7.1693 per dollar, maintaining a level stronger than 7.2. The central bank has upheld this stance since Donald Trump’s victory in the U.S. presidential election in November, aiming to shield the yuan from further depreciation against the dollar.
This move suggests that Chinese authorities are reluctant to allow the yuan to weaken, even as fresh trade disputes with Washington exert downward pressure on the currency. Some analysts had anticipated that China might devalue the yuan to boost export competitiveness and counter the effects of U.S. tariffs, but such a strategy has yet to materialize.
“The PBOC’s continued support for the yuan aligns with its broader strategy to prevent further deterioration in U.S.-China relations,” said Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank. “Maintaining exchange rate stability could also help curb capital outflows.”
Market analysts remain divided on the yuan’s outlook. Goldman Sachs predicts a gradual weakening of the fixing toward 7.3, with the onshore yuan potentially reaching 7.4 to 7.5 per dollar. National Australia Bank suggests that unless a trade agreement is reached, the yuan will likely depreciate to 7.5 in the near future.
The currency maneuver comes amid escalating trade tensions. On Tuesday, China imposed new taxes on certain U.S. imports and launched an antitrust investigation into Google, shortly after Washington announced a 10% tariff on all Chinese goods.
Traders are now closely monitoring developments between the world’s two largest economies. Trump stated on Monday that he is open to a trade deal with China, though he indicated on Tuesday that there is no urgency for talks with President Xi Jinping.
“A positive call between the leaders could push USD/CNH lower, but for now, market focus remains on potential de-escalation,” noted Christopher Wong, a strategist at Oversea-Chinese Banking Corp.
Trade tensions under Trump’s previous presidency had already pushed the yuan past the psychologically significant 7-per-dollar threshold for the first time in a decade. The CSI 300 index initially plummeted 32% over the course of a year before rebounding sharply in 2019.
Wednesday’s fixing, the strongest since November 8, briefly lifted the offshore yuan by 0.1%, though the onshore yuan dropped 0.4% to 7.2826 per dollar in early trading as markets reopened.
The PBOC actively manages the yuan using a daily reference rate, which limits the currency’s movement to within 2% on either side. Additionally, the central bank has deployed other measures to curb volatility.
Last month, the PBOC reinforced capital controls and vowed to crack down on market disruptions after the offshore yuan neared record lows. It issued a record amount of yuan-denominated bills in Hong Kong to tighten liquidity and deter speculative bets against the currency. The bank also halted government bond purchases to slow the decline in local yields and reduce depreciation pressure.
China’s latest currency actions underscore its commitment to stability as global economic and geopolitical uncertainties continue to mount.
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