Yuan pressured by depreciation expectations; long-term yields fall to record lows

By Summer Zhen

HONG KONG (Reuters) -The yuan came under renewed pressure against the dollar on Thursday, giving up some initial gains as markets reflected on a Reuters report that China may weaken the yuan to weather the risk of U.S. trade tariffs.

At 0400 GMT, the yuan was 0.03% lower at 7.2637 to the dollar after trading in a range of 7.2565 to 7.2677.

Reuters reported on Wednesday, citing sources, that China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher U.S. tariffs when Donald Trump returns to the White House.

The yuan and currencies across Asia fell on the dollar following the news on Wednesday.

Adding to the pressure on the currency, Chinese long-term yields fell to record lows on monetary easing expectations, widening the yield disadvantage against the U.S. to the biggest level in 22 years.

Prior to the market opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1854 per dollar, little changed from the previous session and 584 pips firmer than a Reuters' estimate.

Currency traders are also waiting for the outcome of a key economic policy meeting for a clearer picture of monetary and fiscal easing plans next year.

In an article that followed the Reuters report, Financial News, the PBOC's publication, said the foundation for a "basically stable" yuan exchange rate remains "solid," and that the currency is likely to stabilise and strengthen towards the end of this year. That helped the yuan claw back some of its losses.

HSBC analysts said markets should wait for a statement from the Central Economic Work Conference, an annual meeting of Communist Party leaders, to confirm whether there is a shift in Beijing's yuan stance.

Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments said "it is unsurprising that Chinese authorities are considering the option of allowing currency weakening," as a tool to offset the impact of tariffs.

However, he expects a controlled, gradual adjustment of the yuan rather than a sharp, unchecked depreciation that could destabilise financial markets.



The Chinese currency has depreciated for 10 straight weeks, weighed by U.S. President-elect Trump's tariff threats and monetary policy divergence between China and the United States.

The offshore yuan traded at 7.2661 yuan per dollar, up about 0.19% in Asian trade.

Source: Investing.com