Key points
- The decline comes as Sino-US trade war escalates
- It is the lowest level since December 2007
- Analysts expect yuan to continue to come under pressure
ISLAMABAD: The Chinese yuan edged closer to a 17-year low against the US dollar on Wednesday, threatening to escalate the trade war even further as US President Donald Trump criticised Beijing for manipulating its currency.
According to Nikkei Asia, the onshore yuan, which trades within a 2 per cent range of a reference rate fixed by the People’s Bank of China, fell to 7.35 per dollar in the morning.
According to Reuters, the declines come as a trade war between the world’s two largest economies escalates. US President Donald Trump’s “reciprocal” tariffs on dozens of countries took effect on Wednesday, including massive 104 per cent duties on Chinese goods.
According to Nikkei Asia, that is the lowest level since December 2007 on a closing price basis, and just shy of the intraday figure of 7.351 per dollar touched in September 2023, according to data provider Wind.
The PBOC set the reference rate at 7.2066 per dollar on Wednesday morning, slightly weaker than 7.2038 on Tuesday.
The offshore yuan, which trades more freely, was trading at around 7.375 per dollar after sinking to as low as 7.42 per dollar on Tuesday evening.
The fixing
According to Nikkei Asia, the PBOC’s reference rate, known as the fixing, is considered the main policy tool in setting the direction of the tightly controlled currency. The central bank has kept the fixing steady for months but has set it weaker since Trump announced an additional 34 per cent “reciprocal” tariff against China last week. After Beijing retaliated with a matching tariff rate, Trump added an additional 50 per cent. The higher tariffs are due to kick in at midday on Wednesday, Beijing time, bringing the total rate to at least 104 per cent, including Trump’s earlier anti-fentanyl tariffs.
A weaker yuan could make Chinese exports more competitive and help offset the impact of higher tariffs. Trump has taken notice. “You got to hand it to them. They’re manipulating their currency today as an offset against the tariffs,” he said on Tuesday at an event at the National Republican Congressional Committee, Reuters reported.
Weaker fixings
The weaker fixings in recent days come despite the dollar weakening against other major currencies like the Japanese yen and euro.
“A weaker dollar means less pressure for the renminbi to depreciate — but the PBOC is now quietly showing more willingness for the currency to weaken,” Wei He, China economist at Gavekal Dragonomics, wrote in a note on Tuesday.
Still, so far, the PBOC’s fixings have been stronger than analyst estimates, according to Bloomberg. This suggests that the central bank has not unleashed a sharp devaluation of the yuan in an all-out effort to counter the US levies.
Analysts expect the yuan to continue to come under pressure due to expectations that the PBOC will ease monetary policy to support the economy amid the trade war, according to Nikkei Asia.
