Yuan faces pressure from US tariffs and trade tensions

The offshore Chinese yuan remained subdued after two sessions of rebound against the U.S. dollar, as renewed trade tensions between China and the U.S. weighed on market sentiment.

The onshore yuan fell against the dollar due to the uncertainty surrounding the impact of U.S. tariffs. China’s swift retaliation with its own tariffs added to the pressure.

The yuan’s weakness, while offering short-term export support, could dampen investor sentiment and raise concerns about capital outflows, prolonging downside risks unless trade tensions ease.

While the Chinese central bank’s daily fixing aimed to anchor expectations, trade tensions risks continue to weigh heavily on the Chinese currency.

The bond market’s outlook remains uncertain, as investors may seek safer assets considering trade uncertainties and the risks of an economic slowdown. As a result, yields could see some volatility if investors flee Chinese assets. However, yields could remain under pressure if the impact of the tariffs leads to more stimulus and monetary policy changes.