Yuan is facing pressure following news that China is thinking about a weaker currency

Image Credit: Reuters

The yuan faced challenges against the dollar on Thursday, losing some early gains as the market reacted to a Reuters article stating that China might allow a weaker yuan to manage tariff risks.

Before the market opened, the People’s Bank of China set the midpoint rate, which allows the yuan to trade within a 2% range, at 7.1854 per dollar, showing little change from the last session and 584 pips stronger than a Reuters estimate.

The spot yuan began trading at 7.2578 per dollar and was last seen trading 32 pips lower than the previous late session close and 1.1% weaker than the midpoint, losing earlier gains from that morning.

Reuters reported on Wednesday, quoting sources, that China's top leaders and policymakers are thinking about letting the yuan weaken in 2025, anticipating increased U.S. tariffs when Donald Trump returns to the White House.

After the news on Wednesday, the yuan and currencies throughout Asia decreased against the dollar.

Financial News, the publication of the PBOC, later released an article indicating that the basis for a "basically stable" yuan exchange rate remains "solid," and the currency is expected to stabilize and strengthen as this year ends. That report helped the yuan regain some of its losses.

"It is not surprising that Chinese officials are contemplating the possibility of allowing the currency to weaken, as this is a typical reaction to counteract the effects of tariffs," said Rong Ren Goh, a portfolio manager in the fixed income division at Eastspring Investments.

However, he anticipates a controlled, gradual shift of the yuan instead of a sudden, unchecked drop that could disrupt financial markets.

Nonetheless, the Chinese currency has declined for 10 consecutive weeks, influenced by U.S. President-elect Trump’s tariff threats and differing monetary policies between China and the United States.

The offshore yuan was trading at 7.269 yuan per dollar, increasing by about 0.16% in Asian trading.

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.