The offshore yuan strengthened to around 7.21 per dollar on Monday, as optimism over a major breakthrough in US-China trade talks helped offset mounting domestic deflationary pressures and fragile economic data.
Offshore yuan strengthens on Monday
Over the weekend, the two countries agreed to suspend most tariffs on each other’s goods for a 90-day period, with the US slashing its tariffs on Chinese goods from 145% to 30%, while China will lower tariffs on US imports from 125% to 10%. Both sides also committed to intensifying negotiations toward a broader economic and trade framework, fueling hopes of a more sustainable resolution to the prolonged trade dispute.
The tariff rollback boosted investor confidence in the yuan, providing near-term support amid persistent concerns about China’s economic trajectory. April inflation data released earlier in the day highlighted ongoing domestic challenges, with consumer prices falling 0.1% year-on-year for the third consecutive month and producer prices slumping 2.7%, marking the steepest decline in six months. The data reflects deepening deflationary pressures fueled by weak domestic demand, subdued consumer spending, and lingering overcapacity issues in key industrial sectors.
China data impact on the currency
Additionally, the slump in factory gate prices signals ongoing margin pressures for manufacturers, exacerbating worries about corporate profitability and employment stability. Analysts noted that while the easing of external tensions might temporarily alleviate market stress, it is unlikely to provide a quick fix to China’s underlying economic fragility. Rising external risks—including intensifying competition for export markets, fragile global demand, and ongoing trade uncertainty—could continue to weigh on China’s growth outlook.
Investors are now closely monitoring further policy signals from Beijing, with expectations growing for additional monetary and fiscal support measures to stabilize demand, stimulate investment, and counteract deflationary pressures in the months ahead.
