The offshore yuan plunged to around 7.36 per dollar, hitting its record low, after U.S. President Donald Trump’s tariffs fueled fears of a widening trade war and a slowdown in global growth.
Yuan plunges after US hits China with tariffs
The US announced tariffs of 25% on goods from Canada and Mexico, and 10% on those from China, set to take effect on Tuesday. The affected countries immediately vowed retaliation, with China promising to challenge Trump’s tariffs at the World Trade Organization and implement countermeasures, further escalating fears of a prolonged trade dispute that could destabilize global markets.
PMI also puts pressure
The yuan faced added pressure after China’s manufacturing PMI dropped to 50.1 in January 2025, falling short of expectations and December's 50.5, marking the slowest growth in four months. The weaker-than-expected data raised concerns about the sustainability of China’s economic recovery, with shrinking foreign orders and ongoing trade challenges compounding the situation. These signs of cooling growth have increased speculation that Beijing will be forced to introduce more aggressive economic stimulus measures in an effort to counteract the negative effects of the US tariffs and support domestic demand.
High uncertainty for investors
The combination of a weaker yuan and economic slowdown, alongside rising tensions between the world's two largest economies, has created an environment of heightened uncertainty for investors. Markets are now focused on upcoming PMI data releases later this week, as well as consumer and producer inflation figures set for next week, which will offer further clues on the trajectory of China’s economic performance and its response to the growing pressures from the trade dispute. Should these indicators show continued weakness, Beijing’s policy response will be under intense scrutiny, particularly in terms of potential fiscal stimulus measures and efforts to stabilize the currency.
