SHANGHAI: China’s yuan fell against the US dollar on Wednesday following President Donald Trump’s hint of potential new tariffs on Chinese imports.
Trump said on Tuesday his administration was discussing a 10% punitive duty on Chinese imports because fentanyl is being sent from China to the US via Mexico and Canada. The offshore yuan eased around 0.2% on the news.
Onshore the spot yuan opened at 7.2600 per dollar and was last trading 151 pips lower than the previous late session close as of 0303 GMT at 7.2771 and 1.5% weaker than the midpoint.
“Trump’s comments were made in passing. Overall, he tends to be cautious, influenced by factors such as high inflation in the United States, fentanyl, and issues surrounding TikTok, etc.,” said Liang Ding, an analyst at research firm Macro Hive.
Ding said that Trump will wait for the results of a review of the Phase I trade deal he signed with Beijing in 2020 to buy some time for dialogue with China.
However, Ding believes the trade relationship between the two countries has evolved from “rebalancing” to “decoupling”.
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 7.1696 per dollar, its strongest since Nov 8, 2024 and 946 pips firmer than a Reuters’ estimate.
“10% tariffs on China imports would be far below the 60% rate he mentioned in his campaign,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
During Trump’s first term as president, the yuan weakened more than 12% against the dollar during a series of tit-for-tat US-Sino tariff announcements between March 2018 and May 2020.
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Tan expects US trade protectionism to come to the fore in coming months, but for now the tariff reprieve means that the US dollar is trading on the backfoot, and the onshore yuan will not weaken past 7.35 per dollar before the week-long Lunar New Year holidays starting next week.
The offshore yuan traded at 7.2819 yuan per dollar, down about 0.17% in Asian trade.
The dollar’s six-currency index was 0.046% lower at 108.09.
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