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SHANGHAI: The yuan dipped slightly against the dollar on Monday as China’s central bank pledged to keep the currency stable and set firm guidance amid sliding Chinese bond yields and signs of capital outflows.

The yuan is widely expected to face heightened downward pressure next year as Chinese authorities pledge further monetary easing in the face of a looming trade war with the US.

The yuan changed hands at 7.2792 per dollar in late morning trade on Monday, slightly weaker than Friday’s close.

In a sign of support to a currency that has lost 3.5% against the dollar since end-September, the People’s Bank of China (PBOC) set the yuan midpoint at 7.1882, nearly 900 pips firmer than Reuters estimate.

The PBOC also pledged to strengthen management of exchange rate expectations, and firmly prevent sharp volatility in the currency.

It comes as China’s long-term bond yields hit record lows, widening the US yield advantage to the biggest in 22 years.

China’s equity and bond markets witnessed outflows of $5.8 billion and $7.5 billion, respectively, in November according to the Institute of International Finance (IIF).

The official gesture “indicates that the yuan will likely be stable at the turn of the year, drawing support from year-end corporate dollar settlement when trading is thin,” CIB Research said in a note.

China’s yuan eases after remarks at key economic meeting fail to inspire

But the think tank advised clients to use tools such as forex call options next year to hedge against yuan depreciation risks due to US tariff risks.

The view was echoed by Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, who expects the PBOC to “consider allowing further depreciation of the yuan to mitigate the impact of tariffs imposed by other countries on Chinese exports, particularly from the US”.

US President-elect Donald Trump has threatened to impose tariffs of 60% or more on Chinese goods.

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