The offshore yuan strengthened to around 7.24 per dollar on Tuesday, erasing losses from the previous session as the greenback weakened amid growing fears of a tariff-driven US recession.
Offshore yuan rises on weaker dollar
Investor concerns deepened after US President Donald Trump described the current economic situation as a "period of transition" but avoided making definitive predictions on whether his administration’s trade policies, particularly tariffs, could lead to a full-blown recession. The uncertainty surrounding the future of US trade policy has sparked a flight to safe-haven assets, which in turn put pressure on the US dollar, benefiting the yuan.
Government aims to bolster economic growth
In China, the government has signaled its commitment to bolstering economic growth through fiscal stimulus, raising its fiscal deficit target to 4% of GDP. This move comes as part of a broader effort to offset the economic slowdown caused by both domestic challenges and external trade tensions. Additionally, China announced plans to issue ¥1.3 trillion in ultra-long-term bonds for 2025, a ¥300 billion increase over last year, in an effort to fund infrastructure projects and support various growth initiatives. This fiscal push is expected to provide a much-needed boost to the economy, which has been struggling with weak domestic demand and the ongoing impact of global trade disruptions.
On the monetary policy front, traders have dialed back expectations for imminent rate cuts after People’s Bank of China (PBOC) Governor Pan Gongsheng reaffirmed that any monetary easing would occur "at an appropriate time." While some had hoped for more aggressive rate cuts to spur growth, Pan’s comments suggest that the PBOC is adopting a more measured approach, balancing the need for economic support with concerns about financial stability and rising inflationary pressures.
Political developments after China Two Sessions meeting
As China’s Two Sessions annual meetings conclude, investors are closely monitoring key policy announcements that may offer further clarity on the government’s fiscal and monetary stance for the remainder of the year. The outcome of these meetings could set the tone for China’s economic trajectory in the coming months, especially in light of ongoing trade uncertainties and domestic challenges. The yuan’s movements will likely remain sensitive to these developments as both domestic and global factors continue to shape investor sentiment.
