HONG KONG: China’s yuan weakened against the dollar on Thursday, as uncertainty surrounding the path of US interest rate cuts and potential tariffs weighed on sentiment.
US Federal Reserve Chair Jerome Powell indicated a slower pace of rate cuts ahead due to a stronger-than-expected economy, during a speech on Wednesday, supporting the dollar’s strength.
The spot yuan opened at 7.2600 per dollar and was last trading 33 pips lower than the previous late session close and 1.16% weaker than the midpoint.
“The market is hesitant to adopt a strong stance on Fed cuts beyond the one currently projected for the FOMC meeting on December 18,” DBS analysts said in a note.
The yuan has faced renewed depreciation pressure from President-elect Donald Trump’s tariff threats and monetary policy divergence between China and the United States.
A shallower US easing cycle could widen the divergence.
Yuan rebounds from 13-month low after firmer midpoint fixing
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1879 per dollar, 785 pips firmer than Reuters’ estimate.
“Once the US announces higher tariffs on China, we believe the PBOC will have to put greater focus on easing financial conditions while tolerating a weaker yuan,” BofA FX strategist Janice Xue said in a note.
She estimates the yuan will drop to 7.6 against the dollar in the first half of 2025.
Nomura forex analysts led by Craig Chan expect the combination of elevated risks - Trump implementing tariffs and anti-China policies by the US - will lead to a deterioration in China’s capital flows, in its 2025 outlook.
Most of the non-dollar currencies will depreciate when Trump’s tariffs are implemented, the investment bank added.
The offshore yuan traded at 7.281 yuan per dollar, down about 0.01% in Asian trade.
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