The offshore yuan strengthened to around 7.20 per US dollar on Wednesday, snapping a three-day losing streak as a weakening greenback provided a tailwind for the Chinese currency. The US dollar faced renewed pressure amid political gridlock in Washington, where President Donald Trump struggled to gain support from key Republican lawmakers for his flagship tax reform bill.
Offshore yuan snaps three-session losing streak
The setback came on the heels of Moody’s decision to downgrade the US sovereign credit rating, citing rising debt levels and deteriorating fiscal discipline, further undermining investor confidence in the dollar.
In contrast, sentiment toward the yuan was bolstered by the People’s Bank of China’s latest policy actions aimed at shoring up growth and containing downside risks from escalating trade tensions with the United States. During its May 2025 meeting, the PBoC cut its benchmark lending rates for the first time in seven months, reducing the one-year loan prime rate (LPR) by 10 basis points to 3%, and the five-year LPR — a key reference for mortgages — by an equal margin to 3.5%. These rate cuts brought both benchmarks to record lows and reflected Beijing’s increasing urgency to stimulate domestic demand and support business confidence amid mounting external headwinds.
Wave of stimulus measures
The monetary easing follows a broader wave of stimulus measures introduced earlier in the month, including reductions in reserve requirement ratios (RRRs) for select banks, targeted credit support for small and medium-sized enterprises, and stepped-up infrastructure spending initiatives at the local government level. Together, these actions underscore a coordinated policy response to cushion the economy from both cyclical weaknesses and structural pressures — including soft export demand, weakening property investment, and regulatory uncertainty in key sectors such as technology and real estate.
While the yuan has faced intermittent pressure in recent weeks due to diverging monetary policies between the US and China, the latest developments suggest the downside may be limited in the near term. The US policy backdrop has shifted toward greater uncertainty following the credit downgrade and legislative setbacks, while China’s policy environment appears more stable and proactive in promoting financial and economic stability.
US-China relations updates
Additionally, market participants are closely monitoring US-China relations for signs of further strain, particularly as trade negotiations remain stalled and new tariff threats loom. Any easing in tensions or signs of renewed dialogue could offer further support for the yuan, while escalating rhetoric or retaliatory measures might rekindle depreciation pressures.
For now, however, the combination of a softer dollar and decisive domestic policy support has helped the offshore yuan regain some ground, offering a temporary reprieve for Chinese policymakers wary of capital outflows and currency volatility. Investors will be watching closely in the coming days for additional signals from the PBoC, as well as economic data releases that could provide insight into the effectiveness of the latest round of stimulus.
