Thu Apr 10 07:40:00 UTC 2025: ## Yuan Breaks Key Level as Dollar Strengthens Amidst Global Market Volatility
**Hong Kong/Beijing –** The Chinese Yuan (CNY) fell to a new low against the US dollar on Monday, breaking the psychologically important 7.2 level for the first time in years. The onshore Yuan’s central parity rate dropped 58 points to 7.2038 against the dollar, while the offshore Yuan briefly surpassed 7.40. This significant depreciation comes amid a backdrop of global market uncertainty and a strengthening US dollar.
The move follows two consecutive days of declines exceeding 90 points in the Yuan’s mid-price, leading analysts to believe that the People’s Bank of China (PBOC) may be allowing for greater flexibility in the currency’s value. However, even with the PBOC allowing this key level to be breached, some traders noted a significant counter-cyclical factor adjustment, highlighting the ongoing intervention efforts.
The depreciation is partly attributed to the stronger dollar, fueled by recent market volatility and speculation of increased US tariffs on Chinese goods. Concerns regarding a potential 50% additional tariff are reportedly impacting the offshore Yuan market significantly. Experts are closely monitoring two key indicators to gauge the PBOC’s intentions: the continued pace of daily Yuan depreciations, and the widening gap between onshore and offshore rates.
While major global indices experienced dramatic swings this week, with sharp declines followed by significant rebounds, the US dollar’s strength remains a primary driver of the Yuan’s weakness. Experts suggest that the dollar’s rise is a combination of profit-taking in other markets and a rebound in US equities.
Analysts at Barclays and other institutions predict continued uncertainty in the Yuan’s trajectory against the dollar, but a weakening trend against a basket of currencies is considered more likely. Some, like Goldman Sachs, believe the PBOC may prefer to manage the depreciation through its CFETS currency basket index, aiming to enhance competitiveness while maintaining relative stability against the dollar and preventing capital outflow. The index, which had reached near 102 recently, is currently around 98.77.
The Federal Reserve’s stance and subsequent US dollar movements remain crucial factors. While markets anticipate potential rate cuts, Fed Chair Jerome Powell’s recent remarks emphasizing caution against rapid cuts are providing some support to the dollar.
Banks like Standard Chartered predict further tests for the USD/CNY rate in the 7.30-7.35 range in Q2, citing factors like upcoming dividend payments, potential risk aversion boosting the dollar, and potentially weakening exports due to recent tariff increases. The upcoming release of the March US CPI data will also be a key focus. Overall, market sentiment remains pessimistic about future US inflation and employment, likely to continue impacting global markets and currency valuations.
First Piper 