China’s Yuan Hits Lowest Level Since 2023
China’s yuan hit its weakest point since 2023 on Tuesday, following a slight easing of the central bank’s control over the currency.
This move comes amid a deepening trade dispute between China and the United States, as President Donald Trump threatened to impose further tariffs on Chinese goods. The tensions between the two largest economies show little signs of easing, and analysts suggest that China’s decision to weaken its currency could be aimed at mitigating the impact of the ongoing trade war on exports.
China Attempts to Counteract Trade War by Easing Currency Control
As the yuan continues to slide, analysts speculate that the Chinese government may allow further depreciation to make its exports more competitive. However, a sharp drop in the yuan could lead to unwanted capital outflows and jeopardize financial stability. Experts like Vishnu Varathan from Mizuho Bank suggest that while China may soften the yuan, they are unlikely to allow a steep depreciation, prioritizing economic stability.
In response to the U.S. tariffs, market expectations have grown that China may eventually devalue its currency further, although the People’s Bank of China (PBOC) appears committed to maintaining a level of control over the situation. The PBOC set the official midpoint rate for the yuan at 7.2038 per dollar, a level not seen since September 2023, though it remains firmer than market expectations.
Impact of Tariffs and Potential Negotiations on the Yuan’s Future
Traders and analysts are keeping a close eye on the possibility of the yuan crossing the key 7.2 per dollar mark, which could signal further depreciation. However, the market remains cautious, with some speculating that China might soften its stance and begin talks with other countries to address tariffs. Although the yuan has weakened by about 1% against the dollar so far this month, the situation remains fluid as Beijing navigates the effects of escalating tariffs and looks to manage the broader economic fallout.
Despite concerns about the yuan’s depreciation, analysts believe that a sharp drop in the currency is unlikely. Larry Hu, chief economist at Macquarie, argued that Beijing would avoid a steep depreciation, preferring a more controlled approach. With the ongoing tariff threats, China is expected to employ a mix of tariff and non-tariff measures, but a drastic depreciation of the yuan is not anticipated at this stage.
In equity markets, stocks in China and Hong Kong rose on Tuesday, buoyed by stronger regional markets and government-backed support, providing a slight sense of stability amid the ongoing trade uncertainty.
Alexander Stefanov
Reporter at Coindoo
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over 8 years of experience covering the crypto, blockchain and fintech industries, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics.
