PBOC Weakens Yuan in Response To Trump’s Tariff’s

The Chinese yuan (USDCNH: +0.2%) is returning today to a historical low after the People’s Bank of China (PBOC) weakened the reference rate against the dollar to 7.2038 CNH. The exchange rate broke through the psychological 7.20 level for the first time since Donald Trump’s November election and is now at its lowest point since September 2023.

The yuan’s devaluation is another step in the trade war between China and the United States, aimed at boosting the competitiveness of Chinese exports following a dramatic escalation in protectionism. Within a week, tariffs on Chinese goods entering the U.S. have exceeded 50%, while American-made products have been hit with 34% tariffs by China. The PBOC’s decision will certainly be a thorn in the side of the Republican administration, which—through the voices of Trump, Bessent, and Lutnick—has repeatedly accused U.S. trade partners of “currency manipulation” and deepening the American trade deficit.

On the other hand, a strategic devaluation brings its own set of risks:

• Abandoning plans to stabilize the yuan may undermine investor confidence in Chinese assets, potentially triggering capital outflows and even greater volatility.
• Further deterioration in relations between the world’s two largest economies, along with firm retaliation pledges from both sides, sets the stage for a significant slowdown in economic growth. In March, the OECD projected GDP losses of 0.7% for the U.S. and 0.1% for China within three years of implementing even modest 10% bilateral tariffs—highlighting just how high the stakes are, even with protectionism in such a limited form.

Source: xStation5

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