(Bloomberg) — Traders buck China's efforts to support the yuan, pushing the yuan weaker for the first time in a year as policymakers say they must continue monetary easing to revive the economy. dropped to a low price.
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The country's 10-year bond yields have fallen to record levels and the yuan has weakened on concerns that the economic slump will be exacerbated by expected tariff hikes under Donald Trump. The decline came despite Beijing's efforts to boost the currency with a stronger-than-expected daily benchmark rate.
“The yuan remains weak on expectations for further domestic interest rate cuts, while the economic recovery remains uneven,” said Christopher Wong, a strategist at Oversea-Chinese Bank in Singapore. “Headlines over the past few days have been a constant reminder that expanded tariffs could be implemented quickly once President Trump officially takes office in January.”
The yuan has fallen nearly 4% from its high in late September, threatening to undermine China's long-held ambitions to maintain a stable and strong currency. Traders are now waiting to see whether authorities will allow a fixed daily rate below the $1/$7.2 level, which is currently seen as a key dividing line.
The onshore yuan fell as much as 0.4% to 7.2996 yuan on Tuesday, before depreciation adjustments, while the offshore yuan fell as much as 0.4% to 7.3148 yuan. The People's Bank of China's set value is fixed daily, and the currency is allowed to move 2% on either side around the 7.1996.
The yuan has been the worst performer among Asian currencies since early November, with much of the decline triggered by Trump's election victory.
“The People's Bank will very carefully manage how high the yuan appreciates,” said Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management in Hong Kong, using another name for the yuan. said. “From a domestic perspective, the rapid depreciation of the renminbi has always been seen as a risk to financial stability.”
Pressure on the yuan has intensified in recent days as trade tensions escalate. Over the weekend, President Trump renewed his threat to impose 100% tariffs on a group of emerging market countries, including China. The United States then announced new restrictions on China's access to chips and critical components of artificial intelligence on Monday.
To make matters worse, the yuan's interest rate discount to the US is widening as traders bet on PBOC easing. China's 10-year bond yield fell to a record high of 1.98% on Monday, more than 2 percentage points below the same-term U.S. bond.
