The offshore yuan weakened to around 7.31 per dollar on Tuesday, dragged down by the resurgence of US–China trade tensions that reignited investor caution.
Offshore yuan dips as US-China tensions rise
On Monday, Beijing issued a stark warning that it would retaliate against any countries aligning too closely with Washington in ways that threaten China’s economic and strategic interests, escalating fears of a broader, more entrenched global trade conflict. The warning came amid reports that the Trump administration is planning to leverage tariff negotiations to pressure its allies into curtailing business ties with China, signaling a potentially more coordinated Western effort to isolate Beijing economically.
The renewed geopolitical risks have weighed heavily on the yuan, raising concerns over further capital outflows and financial market instability. Nonetheless, some investors are holding onto optimism that Beijing will step in with fresh stimulus to cushion the economy against external shocks. Expectations are building for the Chinese government to roll out additional support measures, including increased special bond issuance by local governments and expanded fiscal spending to bolster infrastructure, technology, and green energy sectors.
PBoC supports the currency
At the same time, the yuan found some underlying support from efforts by the People’s Bank of China (PBoC) to promote its internationalization. The central bank has encouraged major state-owned enterprises to settle more cross-border trade transactions in yuan rather than dollars and is pushing for greater use of the currency in overseas credit operations. These initiatives reflect Beijing’s longer-term strategy to reduce reliance on the dollar-dominated financial system, particularly as tensions with the United States show no signs of easing.
On the monetary policy front, the PBoC has so far opted for stability, keeping key lending rates unchanged following a batch of stronger-than-expected economic data released earlier this month, including robust manufacturing activity and a rebound in exports. The decision signals a more cautious approach to easing, suggesting that policymakers may prefer to reserve ammunition in case external pressures intensify further in the coming months.
Yuan could face continued downward pressure
Looking ahead, analysts warn that the yuan could face continued downward pressure if US–China relations deteriorate or if global investors become more risk-averse. However, aggressive intervention by Chinese authorities and expectations for targeted fiscal stimulus could help temper the pace of depreciation, preventing disorderly moves in the currency market.
