The offshore yuan depreciated past 7.25 per dollar on Friday, reaching its lowest level in over a week, primarily driven by a strengthening US dollar. The greenback gained momentum following comments from Federal Reserve Chair Jerome Powell, who reiterated that the central bank is in no rush to lower interest rates, reinforcing expectations of tighter US monetary policy for the near term.
Chinese yuan falls to lowest in one week
The yuan faced additional headwinds as the People’s Bank of China (PBOC) scaled back its support for the currency through its daily midpoint fixings, signaling a willingness to allow gradual depreciation rather than aggressively intervening to stabilize the exchange rate.
On the monetary policy front, the PBOC kept its key lending rates unchanged for the fifth consecutive month in March 2025, in line with market expectations. The one-year loan prime rate remained at 3.1%, while the five-year loan prime rate held steady at 3.6%, both at historic lows following reductions in October and July of 2024. Despite the pause, the central bank maintained a dovish stance, emphasizing that it would cut interest rates and adjust the reserve requirement ratio for banks at an appropriate time to support economic growth.
Concerns over China’s economic recovery persist
Meanwhile, concerns over China’s economic recovery persisted, with recent data pointing to sluggish consumer demand and weak business confidence, particularly in the property sector. Investors also weighed Beijing’s latest stimulus measures, which, despite promises of increased fiscal support, lacked specific details on execution and timing. The combination of a resilient US dollar, cautious PBOC policy, and lingering economic uncertainty contributed to renewed pressure on the yuan, with traders closely watching for further guidance from Chinese policymakers on future monetary easing and exchange rate management.
