HONG KONG- China’s yuan was firmer against the US dollar on Thursday, as the greenback retreated from a recent rally on investors’ concerns over the risk that President-elect Donald Trump will start a tariff war that no one will win.
Interest in making big bets on the dollar also thinned ahead of the US Thanksgiving holiday.
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 percent band, at 7.1894 per dollar, its strongest since Nov. 11 and 333 pips firmer than a Reuters’ estimate.
The relatively stable onshore fixing rate through the gyrations of the dollar indicated “Chinese authorities’ preference for a stable currency for now at least until better clarity on Trump’s tariff policies,” Michael Wan, a senior currency analyst at MUFG Bank said in a note.
Investors are still digesting Trump’s pledges to impose a 25 percent tariff on all products from Mexico and Canada and an additional 10 percent tariff on goods from China once he assumes office in January, which could draw retaliation from those countries.
The move could drag the world’s top two economies into a mutually destructive tariff war, China state media warned on Wednesday.
Spot yuan opened at 7.2380 per dollar and was last trading 15 pips firmer than the previous late session close and 0.78 percent weaker than the midpoint.
UBS Global Wealth Management expects the yuan to weaken toward 7.5 against the dollar by the end of 2025 as the trade war intensifies, even as China’s central bank leans against yuan depreciation by stabilizing its daily fixing rate against the dollar.
J.P. Morgan economists said the yuan could depreciate between 10 percent and 15 percent amid the tariff pressure in 2025, and China’s economic growth rate could be dragged by 1 percent.
