CNH edges lower after PBoC weakens yuan fixing

CNH edges lower after PBoC weakens yuan fixing

CNH Edges Lower After PBOC Weakens Yuan Fixing

The offshore yuan (CNH) fell to a record low against the U.S. dollar following a weaker-than-expected reference rate set by the People’s Bank of China (PBOC) on Tuesday. The central bank fixed the USD/CNY midpoint at 7.2038 per dollar, marking the weakest level since September 2023 and signaling a shift toward greater currency flexibility. The CNH dropped as much as 1.1% to 7.4290 in New York trading, reflecting heightened depreciation pressures amid escalating U.S.-China trade tensions.

The PBOC’s daily fixing, a closely watched indicator of policy intent, allows the onshore yuan to trade within a 2% band. A weaker midpoint suggests the central bank is tolerating a softer currency, potentially to bolster export competitiveness amid slowing domestic growth and U.S. tariffs on Chinese goods. The U.S. has imposed 104% tariffs on many Chinese products, with President Donald Trump threatening additional levies if Beijing does not retract retaliatory measures.

Analysts note the move reflects a recalibration of China’s currency strategy. “This will be a managed and persistent depreciation,” said Wells Fargo’s Aroop Chatterjee, who anticipates the CNH could weaken further to 7.50 or beyond. However, others caution against sharp devaluation, citing risks of capital outflows, diminished investor confidence, and heightened geopolitical friction. Mizuho’s Ken Cheung emphasized that while the PBOC may allow gradual flexibility, “a sharp yuan depreciation is unlikely due to capital outflow risks”.

The PBOC’s approach balances export support with financial stability. Historically, the central bank has intervened via liquidity adjustments or foreign-exchange market operations to curb excessive volatility. Yet, with trade tensions intensifying and China’s economy facing headwinds, the yuan’s trajectory remains a focal point for global markets.

Investors are closely monitoring policy signals and potential retaliatory measures from Beijing, which has vowed to “fight to the end” against U.S. tariffs. The CNH’s performance underscores the delicate interplay between currency management, trade dynamics, and economic resilience in an increasingly polarized global landscape.