The offshore yuan weakened overnight and broke a key psychological level of 7.3 per US dollar, as the US Federal Reserve’s unexpectedly cautious forecast for rate cuts next year strengthened the dollar.
In the early hours of Thursday, the yuan depreciated to over 7.32 per US dollar – a higher number signals relative yuan weakness – reaching its lowest level since November 2023, while the latest data showed an uptick in the Chinese currency’s share of global payments.
Chen Zhiwu, chair professor of finance at the University of Hong Kong, said the yuan will face continued depreciation pressure next year, as the Fed is likely to slow its pace of rate cuts while China is expected to adopt “stronger rate reductions”.
“Especially with Trump potentially imposing more tariffs on goods, the Chinese government may need to show greater tolerance for a weaker yuan to stabilise exports,” Chen said.
On Thursday morning, the People’s Bank of China set the midpoint rate – also known as the fixing rate – at 7.1911 per US dollar, the lowest level in two weeks, while the offshore yuan traded at 7.31 against the US dollar Thursday afternoon.
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