Chinese Yuan Retreats After Trade Truce as Dollar Demand Surges
China’s currency has taken a step back from recent highs, with both onshore and offshore yuan weakening against the dollar as corporate buyers ramp up demand for the greenback.
The pullback follows a temporary pause in the US-China trade dispute that initially propelled the yuan to its strongest level since November.
On Tuesday, the yuan briefly broke below the 7.20 mark per dollar, benefiting from renewed optimism in global markets. However, by Wednesday, the tide had turned. The onshore yuan dropped 0.18% to around 7.2169, while the offshore version shed 0.22%, reflecting renewed caution among traders and intervention from state-owned banks.
According to Commerzbank’s FX strategist Volkmar Baur, while recent momentum had political support, underlying pressures suggest the yuan is more likely to weaken further in the medium term. “There’s limited room for more rate cuts, but structurally the path is clear,” Baur noted.
The People’s Bank of China (PBoC) added to market unease by setting the daily midpoint at 7.1956, weaker than expectations and signaling potential discomfort with a strong yuan during a period of heightened volatility. This marked the first time since November the fixing fell below consensus estimates, prompting speculation that authorities may want to prevent rapid appreciation.
Goldman Sachs, which had already upgraded its export growth forecast following the trade deal, revised its yuan projections. The bank now sees the currency strengthening gradually to 7.20, 7.10, and 7.00 over the next 3, 6, and 12 months, respectively—up from earlier expectations that saw the yuan weakening past 7.30.
Still, analysts caution that Beijing’s earlier liquidity injections and monetary easing measures, including interest rate cuts, add complexity to the currency’s trajectory. Despite political support from the trade negotiations, fears of persistent deflation and structural economic headwinds remain.
To stem further appreciation, major Chinese banks were reportedly active buyers of dollars on Tuesday, working to halt the yuan’s rapid climb. For now, the yuan remains buoyed by political sentiment—but the road ahead is expected to be bumpy as forex markets digest shifting interest rate expectations, global trade dynamics, and ongoing uncertainty over US dollar strength.
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.
