The offshore yuan depreciated past 7.21 per dollar on Wednesday, extending losses from the prior session as investors reacted to China's latest monetary easing measures aimed at propping up the slowing economy.
Offshore yuan extends decline
The People's Bank of China (PBoC) announced a 10-basis-point cut to its benchmark loan prime rate and a 50-basis-point reduction in the reserve requirement ratio (RRR) for major banks—moves expected to inject roughly CNY 1 trillion in additional liquidity into the financial system. The policy shift underscores growing concerns within Beijing about faltering domestic demand, rising credit stress among property developers, and weakening export momentum, all of which have weighed on growth expectations for 2025.
The yuan's decline also reflects broader macroeconomic headwinds. Recent data showed a sharp contraction in new export orders, alongside declining consumer confidence and subdued industrial output. While monetary easing may provide some near-term support, analysts warn that deeper structural issues—particularly overcapacity in key sectors like real estate and steel—will likely continue to pressure the currency and weigh on capital flows.
Political news
On the geopolitical front, cautious optimism returned to global markets after news broke that Chinese Vice Premier He Lifeng would travel to Switzerland to meet with US Treasury Secretary Elizabeth Bessent and US Trade Representative Michael Greer later this week. The planned meeting, aimed at de-escalating trade tensions, could mark a turning point in a deteriorating economic relationship that has seen the United States impose sweeping tariffs of up to 145% on a broad range of Chinese imports since January. In retaliation, Beijing has responded with duties of up to 125% on various US goods, including agricultural products and high-tech components, further straining global supply chains and raising input costs for manufacturers worldwide.
If the meeting proceeds as planned, it would represent the highest-level diplomatic exchange between the two countries since Chinese Vice President Han Zheng attended President Trump’s second inauguration earlier this year. Markets will be watching closely for signs of progress, particularly any indication that both sides are willing to roll back tariffs or agree on a framework to resolve key disputes related to intellectual property, technology transfer, and state subsidies.
Despite the renewed diplomatic engagement, uncertainty remains high, and the yuan is likely to stay under pressure in the near term. Further depreciation could trigger capital outflows and complicate China’s efforts to stabilize its financial markets, especially with real estate developers facing elevated default risks and equity markets still underperforming. Nonetheless, the PBoC reiterated its commitment to maintaining exchange rate stability, signaling it may intervene more aggressively if downside volatility worsens.
