Yuan under pressure from expectations of depreciation; long-term yields fall to record lows By Reuters

It would be Summer Zhen

HONG KONG (Reuters) – The yuan came under pressure against the dollar again on Thursday, giving up some early gains as markets reacted to a Reuters report that China may weaken the yuan to weather the risk of U.S. trade tariffs.

At 0400 GMT, the yuan was 0.03% lower at 7.2637 per dollar after trading in a range of 7.2565 to 7.2677.

Reuters reported on Wednesday, citing sources, that China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they prepare for higher US tariffs when Donald Trump returns to the White House.

The yuan and currencies across Asia fell against the dollar on Wednesday’s news.

Adding to the pressure on the currency, China’s long-term yields fell to a record low on expectations of monetary easing, widening the yield gap against the US to the highest level in 22 years.

Before the market open, the People’s Bank of China set the middle rate, around which the yuan is allowed to trade within a 2% range, at 7.1854 per dollar, little changed from the previous session and 584 pips firmer than a Reuters estimate. .

Currency traders are also awaiting the outcome of a key economic policy meeting for a clearer picture of plans for monetary and fiscal easing next year.

In an article following the Reuters report, Financial News, a publication of the PBOC, said the basis for the yuan’s “basically stable” exchange rate remained “firm” and that the currency was likely to stabilize and strengthen later this year. That helped the yuan recover some of its losses.

HSBC analysts said markets should wait for an announcement from the Central Economic Working Conference, an annual meeting of Communist Party leaders, to confirm whether there has been a change in Beijing’s stance on the yuan.

Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments, said it was “not surprising that the Chinese authorities are considering the option of allowing the currency to weaken” as a means of mitigating the impact of tariffs.

However, he expects a controlled, gradual adjustment of the yuan, rather than a sharp, uncontrolled depreciation that could destabilize financial markets.

China’s currency has depreciated for 10 straight weeks, weighed down by US President-elect Trump’s tariff threats and monetary policy differences between China and the United States.

It was trading at 7.2661 yuan per dollar, up about 0.19% in Asian trade.