The offshore yuan weakened to around 7.24 per dollar, retreating from a four-month high reached earlier in the session, as investors reacted to renewed trade tensions following the imposition of fresh U.S. tariffs.
Offshore yuan reverses earlier gains
President Donald Trump’s 25% tariffs on steel and aluminum imports officially took effect on Wednesday, impacting major trading partners, including Canada, Australia, and the European Union. Initially, Trump escalated tensions by threatening to double tariffs on Canadian steel and aluminum imports to 50% and warning of further punitive measures if Canada retaliated. However, in a sudden reversal just hours later, he walked back the threat, injecting volatility into currency and trade markets.
Pressure from uncertain outlook
The yuan also faced pressure from broader uncertainty surrounding China’s economic outlook. In an effort to counter slowing growth, Beijing announced plans to ramp up fiscal stimulus, raising its fiscal deficit target to 4% of GDP—the highest in decades—and unveiling a plan to issue ¥1.3 trillion in ultra-long-term bonds in 2025. The move underscores policymakers’ growing urgency to support economic activity amid weak consumer demand, a struggling property sector, and persistent deflationary risks.
On the monetary policy front, traders reassessed their expectations for immediate rate cuts after People's Bank of China (PBOC) Governor Pan Gongsheng emphasized that any monetary easing would occur "at an appropriate time," suggesting that the central bank remains cautious about aggressive stimulus. The PBOC has been walking a fine line between supporting the economy and preventing excessive yuan depreciation, as a weaker currency could trigger capital outflows and further strain investor confidence.
Investors evaluate trade war developments
Looking ahead, investors are closely monitoring upcoming trade negotiations, China's economic data releases, and potential policy responses from both Beijing and Washington. Any signs of further U.S.-China trade tensions or a more aggressive fiscal stance from China could add to currency market volatility. Meanwhile, market participants will also be watching whether the PBOC intervenes to stabilize the yuan should depreciation pressures intensify.
