The offshore yuan depreciated past 7.35 per dollar on Tuesday, extending losses for three consecutive sessions and remaining at its lowest level in two months, as investor sentiment remained frail amid escalating U.S.-China trade tensions.
Offshore yuan stays at two-month low
The ongoing trade conflict between the world’s two largest economies has been a major source of market uncertainty, with the latest developments fueling fears of a prolonged economic standoff. As trade-related risks mounted, investors sought safer assets, exacerbating the yuan’s slide. On Monday, President Trump made a bold statement, threatening to impose an additional 50% tariff on Chinese goods starting Wednesday, on top of the existing duties which already totaled 54%. This new tariff hike marked a significant escalation in the trade war, and its potential impact on both the U.S. and Chinese economies heightened market concerns.
In response to Trump’s threat, China vowed to retaliate, pledging to "fight to the end" to defend its interests. The Chinese government’s rhetoric reflected its resolve to resist further U.S. demands and avoid making concessions that could undermine its economic policies. This escalation in tensions led to China’s announcement last week of a 34% tariff on all U.S. imports starting Thursday, effectively mirroring Washington’s most recent move and signaling an intensification of the tit-for-tat trade war. The prospect of further tariffs and trade barriers between the U.S. and China created additional pressure on the yuan, as investors speculated that the prolonged trade dispute would continue to weigh on the Chinese economy.
Chinese policymakers convened high-level meetings
As the trade conflict continues to intensify, Chinese policymakers have convened high-level meetings to expedite stimulus measures aimed at boosting domestic consumption and stabilizing markets. The government is expected to roll out a range of fiscal support initiatives, including increased public investment and tax relief, to cushion the economy from the impact of the trade war. These measures are designed to address slowing growth, which has been further exacerbated by the tariffs, and to maintain social stability in the face of rising public dissatisfaction over economic challenges. However, while such stimulus measures are expected to provide short-term relief, concerns remain about the long-term sustainability of China's economic growth if the trade dispute with the U.S. persists.
Significant pressure on the yuan
The combination of escalating trade tensions and domestic economic concerns is putting significant pressure on the yuan, with the currency’s depreciation reflecting both the uncertainty surrounding U.S.-China relations and the challenges facing the Chinese economy. As the situation unfolds, market participants are likely to remain cautious, watching for any signs of de-escalation in trade talks or additional policy interventions from Chinese authorities.
