The offshore yuan fell to approximately 7.28 per dollar, extending its losses from the prior session as concerns mounted over heightened tariff threats from U.S. President Donald Trump. This drop comes in the wake of Trump’s announcement of plans to impose tariffs on imports like computer chips, pharmaceuticals, and steel, aiming to bolster U.S. manufacturing.
The renewed tariff threats have amplified fears of escalating trade tensions, adding pressure on the yuan, which is already strained by a slowing domestic economy. Recent PMI data reflected a bleak outlook, with China’s factory activity unexpectedly contracting to 49.1 in January, below the forecast of 50.1. The services sector also slowed significantly to 50.2, a sharp drop from December’s nine-month high of 52.2.
In response to these economic pressures, the People’s Bank of China (PBOC) injected a record 1.7 trillion yuan ($234 billion) into the financial system in January via three- and six-month reverse repos. This marks the largest operation since the tool’s introduction in October, with the central bank prioritizing yuan stability over further monetary easing.
The significant liquidity injection aims to cushion the economy amidst growing challenges. However, analysts suggest that the dual strain of global trade tensions and a weakening domestic economy could keep the yuan under pressure in the short term.
As the U.S.-China trade dynamics evolve, market participants are closely monitoring policy actions and economic data for further signals on the yuan’s trajectory and overall financial stability in China.
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