The Chinese yuan corrected but remained on a steady trajectory since the beginning of the year, whilst the Chinese 10-year bond yields also slightly retreated below the 1.95% mark, now hovering near 1.93%.
This minor pullback reflects the Peopleโs Bank of Chinaโs (PBoC) cautious stance, as the central bank kept benchmark lending rates steady for the fifth consecutive month in March.
Early signs of economic recovery, such as improvements in manufacturing, industrial output, and retail sales, could reduce the urgency for more aggressive monetary easing, leading to a more stable outlook for the currency.
However, the PBoCโs softer monetary policy pledge suggests that rate cuts and reserve requirement ratio reductions are possible later in the year, weighing on the currency. At the same time, the wide yield differential with the U.S. limits the PBoCโs ability to ease policy without putting further pressure on the currency.
Meanwhile, the ongoing trade tensions between the U.S. and China further complicate the outlook. Retaliatory tariffs and export restrictions could slow economic growth, impacting the yuan and introducing volatility in the bond market.
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