SHANGHAI: China’s yuan weakened against the dollar on Tuesday, pressured by renewed investor worries over tensions between the world’s two largest economies and uncertainty around U.S. tariffs on Chinese exports.
Donald Trump’s administration was planning to toughen semiconductor restrictions on China, Bloomberg reported on Tuesday, citing unnamed sources.
The move, comes after Trump said tariffs on Mexico and Canada would proceed as planned, underpinned the dollar and pressured the Chinese currency, traders said, adding market participants were worried about any potential hikes on tariffs on Chinese goods.
“We continue to expect modest depreciation of yuan against the dollar to 7.6 by end-2025, assuming more additional tariffs after April,” Wang Tao, chief China economist at UBS, said in a note.
By 0323 GMT, the onshore yuan was 0.16% lower at 7.2581 per dollar, while its offshore counterpart traded at 7.2580.
Trade tensions were among the biggest drags on the yuan during Trump’s first term, when a series of tit-for-tat U.S.-China tariff announcements drove the Chinese currency down more than 12% against the dollar between March 2018 and May 2020.
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Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1726 per dollar, its weakest since January 20 and 807 pips firmer than a Reuters’ estimate of 7.2533.
The central bank has set its official guidance on the firmer side of market projections since mid-November, which analysts and traders see as a sign of unease over the yuan’s decline.
“The White House’s ‘America First Investment Policy’ which designates China a key foreign adversary and the USTR’s statement on investigating China’s dominance of the maritime, logistics, and shipbuilding sectors might be a wake-up call that China is a key focus of the Trump administration,” said Ting Lu, chief China economist at Nomura.
“A much more significant confrontation between the world’s two largest economies may be inevitable.”
Separately, China’s central bank conducted a medium-term loan operation earlier in the session by offering 300 billion yuan ($41 billion) to some financial institutions and left the interest rate unchanged.
With 500 billion yuan worth of such loans maturing this month, the operation resulted in a net withdrawal of 200 billion yuan.
“The under rollover of medium-term lending facility (MLF) was as expected and in line with the policy to gradually fade MLF,” said Frances Cheung, head of rates and FX strategy at OCBC Bank.
“However, this has to be supplemented by some outright reverse repo operations. Otherwise, liquidity is likely to stay on the tight side.”
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