SINGAPORE/HONG KONG: The offshore yuan languished near record lows struck overnight in early trading on Wednesday, as investors fretted about intensifying Sino-U.S. trade tensions and the impending 104% tariffs on China.
The declines in the yuan this week have come as a trade war between the world's two largest economies escalates and after the central bank loosened its grip on the currency in what analysts said was an attempt to counteract the blow to exports from tariffs.
The yuan was last 0.4% higher at 7.3955 in the offshore market, having sank more than 1% in the previous session and hitting its weakest level on record at 7.4288 per dollar in volatile trade.
The United States said on Tuesday that 104% duties on imports from China will take effect shortly after midnight, even as the Trump administration moved to quickly start talks with other trading partners targeted by his sweeping tariff plan.
"The move in dollar-CNH overnight was definitely material and it came off the back of the fact that Trump is going to move ahead with the extra tariffs on China," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
Kong expects the offshore yuan to reach a low of 7.7 per dollar by the end of the third quarter, but said that level could be reached earlier "if the U.S. and China further impose higher tariffs on each other".
The People's Bank of China on Wednesday set the midpoint rate - around which the onshore yuan is allowed to trade in a 2% band - at 7.2066 per dollar, the weakest level since September 11, 2023.
The onshore yuan sank to a 19-month low of 7.3402 per dollar on Tuesday and ended the session a touch lower at 7.3390.
Both the onshore and offshore yuan have lost more than 1% against the dollar so far this month, leaving them slightly weak for the year, pressured by fears of the economic impact of U.S. tariffs.
A weaker yuan would make exports cheaper and alleviate some pressure on China's trade and the broader economy, but a sharp decline could fuel unwanted capital outflow pressure and risk financial stability, economists said. - Reuters
