Yuan eases to 16-month low, pressured by strong dollar

SHANGHAI, Jan 8 (Reuters) – China’s yuan fell to a 16-month low on Wednesday, pressured by a strong dollar and tariff threats from U.S. President-elect Donald Trump’s incoming administration, despite the central bank setting stronger-than-expected guidance. “The yuan is expected to face depreciation pressure, not only from tariff hikes but also from a significantly stronger dollar,” said Wang Tao, chief China economist at UBS. “Despite these challenges, we believe the government is determined and capable of managing a relatively moderate depreciation,” she added. 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 7.1887 per dollar, 1,548 pips firmer than a Reuters estimate. The spot yuan opened at 7.3250 per dollar and was last trading 31 pips lower than the previous late session close at 7.3315 as of 0226 GMT, the lowest level since September 2023. The yuan was trading 1.99% weaker than the midpoint, suggesting it has been squeezed to the lower extremity of its trading band. Wang said she expected the exchange rate would be controlled around 7.4 per dollar at least through the first half of the year, and should tariff hikes be announced, the yuan could weaken to 7.6 per dollar by year-end. Trump, who takes office on Jan. 20, denied a newspaper report that said his aides were exploring tariff plans that would only cover critical imports, deepening uncertainty among business leaders about future U.S. trade policies. U.S. Treasury yields climbed and the dollar gained after data on Tuesday showed U.S. job openings unexpectedly increased in November while hiring softened, the labour market slowed at a pace that probably does not require the Federal Reserve to be in a rush to cut rates. The dollar’s six-currency index was at 108.58, not far from the two-year high touched last week. The 10-year treasury yield gap between China and the U.S. has blown out to 308 basis points, the widest level in 24 years. The offshore yuan traded at 7.345 yuan per dollar, down about 0.05% in Asian trade. LEVELS AT 0226 GMT INSTRUMENT CURRENT UP/DOWN( % DAY’S DAY’S vs USD -) VS. CHANGE HIGH LOW PREVIOUS YR-TO-D CLOSE % ATE Spot yuan 7.3315 -0.07 -0.44 7.325 7.3319