The offshore yuan depreciated to around 7.32 per dollar on Monday, hitting its lowest level in two months, as mounting concerns over the escalating trade war stoked expectations of further policy easing from Beijing. The yuan’s depreciation comes amid intensifying trade tensions, particularly after the U.S. unveiled its latest round of tariffs.
Offshore yuan hits two-month low
In response to U.S. President Trump’s aggressive tariff measures, Beijing signaled that it has ample room to reduce borrowing costs and lower reserve requirements for banks in order to support economic activity. As the trade war escalates, markets are bracing for deeper disruptions in trade flows, especially with the announcement of a 34% tariff on all U.S. imports starting April 10, along with export controls on rare earths, a critical component in technology and defense sectors.
The measures taken by China, including adding 16 American firms to its export control list and labeling 11 more as “unreliable entities,” are expected to put continued downward pressure on the yuan. These retaliatory steps signal Beijing’s determination to counter U.S. tariffs, even as the economic fallout begins to intensify. With the U.S. imposing tariffs on nearly all Chinese exports at rates of at least 54%, the outlook for China’s trade balance has become highly uncertain. Analysts expect the prolonged trade disruptions to negatively impact export revenues, which could, in turn, put further strain on China’s economy.
Beijing considers additional fiscal measures
In response to these pressures, Beijing is reportedly considering additional fiscal measures, including the issuance of special treasury bonds, to inject liquidity into the economy and buffer against the negative impact of the trade war. These measures are intended to stabilize domestic markets, support key industries, and mitigate potential job losses resulting from a slowdown in exports. However, despite the government’s efforts to manage the economic fallout, concerns about the long-term impact on growth remain. Many businesses, particularly in export-driven industries, are facing increased uncertainty over their future prospects.
PBOC may continue its dovish stance
As the yuan faces pressure from both internal and external factors, the People’s Bank of China (PBOC) is likely to continue its dovish stance, potentially cutting interest rates or reducing reserve requirements further to stimulate the economy. Such moves, however, would have to balance the need for economic stimulus with the risk of capital outflows, which could exacerbate the yuan’s depreciation and add to market volatility. The ongoing trade war is shaping up to be a key determinant in the near-term outlook for the Chinese currency, with policymakers seeking to limit the damage while positioning for a protracted period of trade uncertainty.
With trade tensions showing no signs of abating and the possibility of additional tariffs or retaliatory measures, the yuan’s performance will remain closely tied to the broader dynamics of U.S.-China relations. The currency is expected to face continued volatility as investors react to the shifting landscape of international trade and economic policy.
