Just hours before U.S. President Donald Trump increased tariffs on all Chinese products to 104%, China’s central bank, the People’s Bank of China, allowed the yuan to weaken against the U.S. dollar. The midpoint rate was set at 7.2066 yuan per dollar.
On Tuesday, the central bank had set the rate at 7.2038, marking the first dip below the psychologically significant threshold of 7.2 since September 2023.
“The central bank allowed the yuan to weaken as expected, but this is not evidence of a structural change in currency management,” stated Dan Wang, head of China research at the think tank Eurasia Group, as quoted by the South China Morning Post.
“Amid current tariff pressures, the central bank widened the yuan’s trading band to fully acknowledge the tension in the foreign exchange market, while simultaneously sending a clear signal of its determination to defend currency stability — this policy orientation leaves no room for speculation against the yuan,” he asserted.
The central bank’s intent was to reassure the markets and maintain control, rather than aiding exporters in continuing to sell their goods to the U.S., Wang added.
“The central bank will seek to stabilize, not devalue, the currency during the trade war,” Wang remarked.
The offshore yuan fell 1.1% to 7.4290 per dollar in New York trading by late Tuesday — the weakest level since 2010.
Compared to the onshore yuan, which is strongly regulated by the central bank and can only fluctuate within a maximum daily range of 2%, the offshore yuan is free from capital controls and more sensitive to global risk sentiment.
A report from investment bank Goldman Sachs indicated on Tuesday that the People’s Bank of China could tolerate a smooth and orderly depreciation of the yuan.
Although fiscal policy easing remains the primary tool to cope with the impact of U.S. tariffs, and currency depreciation is a costly and less effective stimulus tool, the central bank is expected to allow more bidirectional flexibility in setting the yuan, the report noted.
“Currency stability remains a priority for Chinese policymakers, with a focus more on managing the depreciation pace rather than targeting a specific USD/CNY level,” the note stated.
