The Chinese Yuan weakened to a 16-month low on Wednesday, just ahead of the inauguration of US President-elect Donald Trump.
The currency, also known as the renminbi, fell by 0.1% to Rmb7.34 against the dollar, marking its weakest level since September 2023, as reported by the Financial Times.
This decline occurred despite the People’s Bank of China (PBoC) maintaining a steady fixing rate in anticipation of Trump’s inauguration.
Renminbi is permitted to trade within a 2% range of the daily rate set by the central bank. Currently, the exchange rate is approaching the lower limit of this trading band.
The selling pressure on the renminbi is partly attributed to concerns that the steep tariffs on Chinese products proposed by Trump could compel the PBoC to weaken the currency to mitigate the impact on exports. These exports have been crucial in sustaining China’s economic growth amid weak domestic consumer demand.
“The market is impatient and wants a blow-up in the renminbi,” said Wee Khoon Chong, a senior markets strategist at BNY.
In addition to the currency’s decline, Chinese equities also experienced a downturn on Wednesday. The mainland China CSI 300 index dropped by 0.3%, while Hong Kong’s Hang Seng benchmark fell by 1.1%.
Analysts suggest that the central bank aims to maintain a steady exchange rate while awaiting more clarity on Trump’s trade policies. They caution that any slight easing of the fix could trigger a larger sell-off of the Chinese currency.
During his campaign last year, Trump said he would impose additional tariffs on China if China were to “go into Taiwan,” the Wall Street Journal reported.
“I would say: If you go into Taiwan, I’m sorry to do this, I’m going to tax you, at 150% to 200%,” the former U.S. president was quoted as saying in an interview with the WSJ, opens new tab published on Friday evening.