Renminbi plunges to lowest level in 16 months as shadow of Trump tariffs and dollar strength put world’s second-largest economy on high alert
China’s currency reached its weakest level in 16 months, with the renminbi weakening 0.1%, reaching Rmb7.34 against the dollar this Wednesday (8), the lowest value since September 2023. The movement comes amid fears that drastic tariffs promised by Donald Trump’s administration will hurt the growth prospects of the world’s second-largest economy.
The weakening occurred despite the People’s Bank of China (PBoC) maintaining a stable benchmark rate ahead of Trump’s inauguration this month. The Chinese currency is allowed to trade within 2% of the daily rate set by the central bank, but the exchange rate is approaching the lower limit of that trading band.
The selling pressure on the renminbi partly reflects fears that a trade war with the US will reduce Chinese exports, one of the pillars of the country’s economic growth, especially in the face of weak domestic demand and a prolonged housing crisis.
“The market is impatient and wants a boom in the renminbi,” said Wee Khoon Chong, senior market strategist at BNY.
On Wednesday, the PBoC announced a daily reference rate of Rmb7.1887 per dollar, largely unchanged from Tuesday’s rate, which was Rmb7.1879. However, pressure on the exchange rate increased after strong US economic data boosted the dollar on Tuesday.
“Selling pressure on the renminbi is essentially a reflection of trade under Trump,” said Ju Wang, head of China FX and rates strategy at BNP Paribas. “The market has been reacting like this since the US election… we believe that a lot has already been priced in, but the market doesn’t want to give up.”
Analysts say the central bank wants to maintain a stable exchange rate as it awaits more clarity on Trump’s trade policies, warning that any easing of the daily fix could trigger an even bigger sell-off of the Chinese currency.
Trump has declared that he plans to impose 60% tariffs on China on the first day of his term.
Chinese stocks also fell on the day. The CSI 300 index, a benchmark in China, and Hong Kong’s Hang Seng index fell 1.3% each.
With information from the Financial Times*
Source: https://www.ocafezinho.com/2025/01/08/guerra-comercial-faz-moeda-chinesa-despencar/
