Yuan stable but capped as US and China trade uncertainty weighs on

The yuan remained stable and could see limited potential for appreciation due to ongoing trade tensions between the U.S. and China.

Tariffs imposed by President Trump have raised concerns about economic growth, as businesses adjust to the uncertainty surrounding global trade policies.

As a result, the yuan could remain under pressure and see a bearish outlook in the near term.

In response to U.S. tariffs, China has filed a complaint with the World Trade Organization (WTO), although the outcome could be uncertain.

Investor sentiment could remain under pressure and weigh on the yuan, with the 10-year bond yield likely to remain subdued. In this regard, yields continued to decline and could remain on a downward trend in case of additional monetary stimulus to counter the impact of trade tensions.

The market is also focused on China’s January inflation report, due Sunday, with expectations for the rate to hold at 0.1% year-on-year. A weaker-than-expected inflation print could exacerbate pressure on the yuan while supporting demand for government bonds, potentially lowering yields further.