Traders Send China’s Yuan Currency to One-Year Low

Traders defied China’s efforts to support the yuan, sending the currency to a one-year low on bets policymakers will have to ease monetary policy further due to lackluster growth and the risk of higher US tariffs.

The yuan slid to the weakest level since November 2023 in both onshore and overseas trading, even after Beijing tried to repair sentiment by setting a stronger-than-expected daily reference rate on Tuesday. A gauge of the dollar is rising back toward a two-year high amid optimism over the US economic outlook.

The yuan has been the worst-performing Asian currency since the start of November on concern potential US tariffs next year under Donald Trump’s administration will exacerbate China’s economic woes. A raft of stimulus measures from Beijing has failed to impress investors and the nation’s residential market remains in a slump.

The People’s Bank of China has sought to support the yuan by keeping its daily reference rate stronger than the level of 7.2 per dollar since Trump won the US election early last month. On Tuesday, while Beijing had weakened the fixing, it still kept the rate significantly stronger than the market’s forecast.

“The yuan remains sluggish amid expectations for further rate cuts at home while the economic recovery remains uneven, and US tariffs can further hurt the currency,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “Headlines over the past few days serve as a constant reminder that wider tariffs could soon hit when Trump comes on board officially in January 2025.”

Pressure on the yuan has intensified in recent days due to escalating trade tensions. The US unveiled new restrictions on China’s access to vital components for chips and AI on Monday. Over the weekend, Trump reiterated a threat to impose 100% tariffs on a group of countries including China.

The onshore yuan slid as much as 0.4% to 7.2996 per dollar before trimming declines, while its offshore peer was trading 0.2% weaker at 7.3014. The PBOC set the fixing, around which the currency is permitted to move by 2% on either side, at 7.1996.

State banks increased their dollar sales when the onshore yuan weakened toward 7.30, capping its losses, according to traders who asked not to be identified.

Chinese stocks also fell. The benchmark CSI 300 Index slipped as much as 0.6%, while the Hang Seng China Enterprises Index lost as much as 1.1% before erasing declines.

“Given the sentiment, it is important for the 7.20 fix level to hold, as any fix set higher would trigger more immediate dollar buying,” said Khoon Goh, head of Asia Research at Australia & New Zealand Banking Group. On top of the reference rate, “the PBOC has several tools it can use to stem the depreciation pressure,” he said.

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