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Yuan Gains: PBOC Holds Rates, Trump Trade Uncertainty Looms

The offshore yuan strengthened to 7.32 per dollar on Monday, marking a three-week high as the People’s Bank of China (PBOC) maintained its key lending rates in January. The central bank kept the 1-year Loan Prime Rate (LPR) at 3.1% and the 5-year LPR at 3.6%, aligning with market expectations.

This decision coincides with preparations for Donald Trump’s inauguration, as trade policy uncertainty weighs on markets. The yuan has fallen over 3% since Trump’s November election victory, driven by his tariff threats of up to 60% on Chinese imports, though reports hint at a gradual implementation.

China’s economic data showed resilience, with GDP growing 5.4% year-on-year in Q4 2024, surpassing forecasts. Full-year growth reached 5%, supported by improved industrial production, retail sales, and housing prices, reflecting the impact of recent stimulus measures.

Despite these gains, China’s unemployment rate ticked up to 5.1% in December, its highest in three months, signaling lingering challenges in the labor market. The mixed economic signals suggest continued scrutiny of both domestic policy and external trade developments.

As the yuan strengthens, markets are closely watching Trump’s policy rollout and its potential impact on China’s trade and economic outlook, which remains a critical driver for global markets.

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