The yuan slipped against the dollar on Thursday, shedding early gains as markets reacted to a Reuters report suggesting that China may weaken its currency to counter potential U.S. trade tariffs in 2025.
At 0400 GMT, the yuan was trading at 7.2637 per dollar, down 0.03%, after fluctuating between 7.2565 and 7.2677 during the session. The report, citing unnamed sources, indicated that Chinese leaders are considering a controlled depreciation of the yuan in response to tariff risks posed by a possible return of Donald Trump to the U.S. presidency.
The speculation has weighed on the yuan and other Asian currencies, with Wednesday’s news triggering declines across the region. Adding further pressure, Chinese long-term bond yields dropped to historic lows, widening the yield gap with the U.S. to its largest in 22 years.
The People’s Bank of China (PBOC) sought to reassure markets by setting the yuan’s midpoint rate at 7.1854 per dollar, slightly firmer than expected. Additionally, an article in Financial News, the PBOC’s official publication, emphasized that the foundation for a “basically stable” yuan remains intact and forecasted potential strengthening by year-end.
Analysts at HSBC advised investors to await a statement from the upcoming Central Economic Work Conference, where policymakers are expected to clarify their stance on monetary and fiscal strategies for 2025.
“It is unsurprising that Chinese authorities are considering the option of allowing currency weakening as a tool to offset tariff impacts,” said Rong Ren Goh, a fixed income portfolio manager at Eastspring Investments. However, he predicted a measured approach rather than abrupt depreciation, which could destabilize markets.
Despite mounting pressure, the yuan’s losses were partially offset in offshore markets, with the offshore yuan trading at 7.2661 per dollar, up 0.19% in Asian trade.
The yuan has been under sustained pressure, depreciating for 10 consecutive weeks amid escalating concerns over U.S. tariff threats and growing divergence in monetary policies between China and the United States.
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