SHANGHAI- China’s yuan weakened past a key threshold to a three-week low against the dollar on Monday, pressured by a buoyant greenback on renewed investor worries over escalating global trade tensions.
Beijing slapped tariffs on US imports last week in an immediate response to new US duties on Chinese goods which President Donald Trump said were aimed at punishing China for not halting the flow of illicit drugs. China’s duties are set to take effect on Monday.
Trump said on Sunday he will introduce new 25 percent tariffs on all steel and aluminum imports into the US on top of existing metals duties.
Looming trade tariffs pushed the dollar higher and weighed on the Chinese yuan, while investors waited to know if there would be a phone call between the leaders of the United States and China.
Trade tension between the world’s two largest economies was one of the main drags on the yuan during Trump’s first term. The yuan fell more than 12 percent against the dollar between March 2018 and May 2020.
“The phone call between Trump and Xi has yet to happen and the suspense implies that cautious trading fills the void,” said Christopher Wong, FX strategist at OCBC Bank.
“Any sign that both Xi and Trump had a ‘good talk’ or both countries are working to come to a deal should qualify as a temporary truce and be supportive of sentiments.”
As of 0259 GMT, the onshore yuan was 0.18 percent lower at 7.3078 to the dollar, breaching the psychologically important 7.3 per dollar level for first time since January 20.
Its offshore counterpart followed a weakening trend and slipped 0.11 percent to 7.3136 per dollar.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate around which the yuan is allowed to trade in a 2 percent band, at 7.1707 per dollar, and 1,343 pips firmer than a Reuters’ estimate of 7.3050.
The central bank has set its official guidance on the firmer side of market projections since mid-November, which analysts and traders say is a sign of unease over the yuan’s decline.
