The Chinese yuan has come under renewed pressure against the U.S. dollar in both offshore and onshore markets, as trade tensions between Washington and Beijing intensify. But despite the currency’s recent weakness, Mizuho Securities says the People’s Bank of China (PBOC) is unlikely to tolerate a sharp depreciation.
Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho in Singapore, said China’s decision to impose 34% retaliatory tariffs on U.S. goods—along with export restrictions on certain rare-earth elements—signals a notable hardening of Beijing’s stance.
“This marks a clear escalation in U.S.-China trade antagonism,” Varathan noted, adding that the yuan may be allowed to weaken moderately to help cushion the economic blow. “A more strident stance on tariffs could align with some depreciation in the CNH to absorb shocks,” he said.
However, Varathan stressed that financial stability remains a top priority for Chinese authorities. “The PBOC will not desire or pursue a sharp depreciation, as it risks undermining capital market confidence,” he said.
The remarks come amid growing scrutiny over how China will navigate external pressure without destabilising domestic financial conditions.
This article was written by Eamonn Sheridan at www.forexlive.com.