SHANGHAI: China’s yuan firmed against the dollar on Thursday, underpinned by a rise in domestic bond yields as investors assessed the impact of an escalating global trade war.
Contrary to market consensus, the yuan has held steady despite higher tariffs, while government bond yields have risen rather than fallen, said Larry Hu, an economist at Macquarie.
Hu attributed recent weakness in the dollar and the success of local startup DeepSeek as reasons behind improved risk sentiment, which in turn, supports the yuan.
The dollar index, which measures the currency against a basket of six major peers, slipped 0.029% at 103.56, hovering near a 4-month low.
Meanwhile, higher bond yields underpinned the yuan.
China’s 10-year bond yield has risen more than 20 basis points since February, as investors lowered their expectations for an imminent rate cut and funding conditions in the interbank market remained tight.
“However, one should be cautious in extrapolating the near-term trend, as the fundamentals remain weak. The trend of stronger yuan and higher bond yields will be more sustainable if domestic demand picks up,” Hu said.
The spot yuan opened at 7.2350 per dollar and was last trading at 7.233 as of 0323 GMT, 53 pips firmer than the previous late session close, and 0.84% weaker than the midpoint.
US President Donald Trump on Wednesday threatened further tariffs on European Union goods.
This move comes as major US trading partners announced they would retaliate against trade barriers already erected by him.
China’s yuan firms to 4-month high as US worries weigh on dollar
Trade tensions are rising and the outlook for US exceptionalism could be fading, said Chang Wei Liang, currency and credit strategist at DBS, referring to the outperformance of the US economy and assets in recent years.
“Even a softer February consumer price index (CPI) print could only give a muted boost to US stocks,” he said.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1728 per dollar, 711 pips firmer than a Reuters’ estimate.
The offshore yuan traded at 7.2335 yuan per dollar, up about 0.11% in Asian trade.
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