Yuan Remains Stable Amid Trade Optimism

HONG KONG: On Wednesday, the Chinese yuan maintained its value against the US dollar, bolstered by regulatory assurances aimed at preserving market equilibrium and renewed optimism regarding trade relations between the United States and China.

Market sentiment was lifted by remarks from US Treasury Secretary Steven Mnuchin, hinting at a potential de-escalation in the US-China trade dispute. He noted, however, that discussions with Beijing were yet to commence and would be a drawn-out process.

The State Administration of Foreign Exchange communicated on Tuesday its commitment to preventing extreme exchange rate volatility and guarding against unusual cross-border capital movements.

The agency stated that it would enhance oversight, expand its policy tools, and correct any pro-cyclical market behavior, seemingly alluding to measures designed to curb erratic currency fluctuations. By 0420 GMT, the yuan had appreciated by 0.09% to stand at 7.2995 against the dollar, marking a gain of 65 pips from the close of the previous session.

In offshore trading, the yuan was valued at 7.3077 per dollar, reflecting an increase of less than 0.1% during Asian trading hours. According to analysts at CICC, the People’s Bank of China has been actively countering negative sentiment surrounding the yuan, while the weakening of the dollar has recently alleviated downward pressure on the Chinese currency.

“The relative stability of the yuan creates scope for monetary easing, potentially including interest rate reductions.”

Before trading commenced, the People’s Bank of China fixed the midpoint rate, which dictates the range within which the yuan can fluctuate by 2%, at 7.2116 per dollar. This rate was 1,350 pips stronger than projections.

Authorities have slightly relaxed control over the currency, permitting the official guidance to weaken past the 7.2 threshold. Nevertheless, the rate was stronger than market predictions, interpreted by traders as an effort to stabilize the yuan while allowing some flexibility to offset tariff impacts.

Based on the official guidance provided on Wednesday, the yuan is permitted to decline to a level of 7.3558.

The dollar’s index, which measures it against six major currencies, stabilized at 99.17 after increasing by 1.5% in the previous session, following President Donald Trump’s statement that he had no immediate plans to dismiss Federal Reserve Chair Jerome Powell, which brought relief to investors.