The People’s Bank of China set the yuan’s reference exchange rate at 7.1889 per dollar Thursday, 735 pips stronger than the average estimate in a Bloomberg survey with analysts and traders. While the fixing itself was set at its weakest since January, its wide gap versus forecasts signals the central bank’s desire to prevent rapid currency depreciation.
The PBOC’s so-called fixing was being watched closely to gauge its support for the currency as the yuan fell to a two-month low in offshore trading after President Donald Trump announced additional 34% tariffs on Chinese goods. The new levies, which will go into effect on April 9, will add to the 20% that entered effect earlier this year.
Trump’s decision marks a dramatic escalation of his trade war and threatens to exacerbate concern over China’s growth prospects, adding pressure on the yuan.
“The PBOC is allowing a bit more room for the yuan to react to the tariff but the preference for stability is clear,” said Fiona Lim, a senior currency strategist at Malayan Banking. The market will closely watch fixings for the next few days to gauge how much yuan weakness PBOC would tolerate, she added.
Dollar demand rose in the onshore market in the early session, with state-owned banks seen offering liquidity at 7.3050 per dollar level, according to traders who asked not to be identified. State-owned banks continued to borrow the greenback via one-year dollar-yuan swaps onshore, the traders said.
The PBOC has relied on the reference rate to rein in a slide in the currency’s since November, a tool that limits moves in the onshore yuan by 2% on either side. Chinese policymakers also have repeatedly pledged to keep the currency stable, but investors are watching if hefty US tariffs will prompt a recalibration of their currency strategy.
While currency depreciation may help China blunt the impact of US tariffs, economists have also warned that such a move could damage investor confidence and spur capital flows. Allowing the yuan to depreciate rapidly may also antagonise the US and worsen the likelihood of a trade negotiation.
The yuan fell as much as 0.7% against the dollar to its lowest since early February in offshore trading, before paring the decline to 0.3%. The currency fell to weakest since early 2024 versus a basket of peers, according to a Bloomberg tracker of the official CFETS index based on spot prices.
“If the yuan fixing stays around 7.2, it could suggest a policy intention to keep capping the perceived existing top of the band around 7.35,” for the onshore yuan, said Ju Wang, head of Greater China FX & rates strategist at BNP Paribas SA.
“If these tariffs ultimately become effective, we cannot rule out the possibility of USD/CNY moving to 7.5 over time,” she said.
