China’s yuan strengthened against the dollar on Tuesday after three straight sessions of losses, as investors trimmed their dollar long positions amid U.S. recession fears, supporting the yuan and other Asian currencies.
Risk-off global investors piled into the Japanese yen on Tuesday amid fears about a tariff-driven slowdown in U.S. growth. Analysts also noted the lack of flight to the dollar even as it has been sinking in recent weeks as noteworthy.
That also eased pressure on the yuan which had been battling with tariff and domestic economy concerns, allowing China’s central bank to scale down some support on daily fixed rate guidance.
Prior to the market opening, the People’s Bank of China set the midpoint rate USDCNY, around which the yuan is allowed to trade in a 2% band, at 7.1741 per dollar, its weakest level in over a week and 856 pips firmer than a Reuters estimate.
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By 0436 GMT, the yuan USDCNY was 0.2% higher at 7.2450 to the dollar after trading in a range of 7.2426 to 7.2608.
“Since Trump’s inauguration, the materializing U.S. tariff hikes have continued to keep the RMB on the back foot,” Ken Cheung, chief Asia FX strategist at Mizuho Bank, said in a note.
“But the recent USD decline gave the PBOC a sigh of relief in preserving FX stability,” he added.
Some analysts believed the recent breakthroughs in artificial intelligence from DeepSeek to Manus also served as a catalyst, but the question is how long the optimism can last.
The key question over the dollar versus the yuan is whether developments in Chinese technology can challenge U.S. exceptionalism and the dollar’s high valuation, and if this is able to resolve the binding constraints plaguing the Chinese economy, Michael Wan, senior currency analyst at MUFG, wrote in a note.
Meanwhile, DBS analysts noted that the steady yuan exchange rates also opened the window for liquidity injection.
The offshore yuan traded at 7.2448 yuan per dollar USDCNH, up about 0.28% in Asian trade.
LEVELS AT 0435 GMT
|
INSTRUMENT |
CURRENT vs USD |
UP/DOWN(-) VS. PREVIOUS CLOSE % |
% CHANGE YR-TO-DATE |
DAY’S HIGH |
DAY’S LOW |
|
Spot yuan |
7.245 |
0.2 |
0.73 |
7.2426 |
7.2608 |
|
Offshore yuan spot USDCNH |
7.2449 |
0.28 |
1.27 |
7.242 |
7.2605 |