Offshore Chinese Yuan hits record low amid PBoC easing, escalating Trump tariffs

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The offshore yuan plunged to a historic low after China relaxed its control over the currency, coinciding with the United States advancing a steep 104% tariff on numerous Chinese goods.

In late New York trading on Tuesday, the yuan fell as much as 1.1% to 7.4290 per dollar - its weakest level since the offshore market’s inception in 2010 - before recovering slightly on Wednesday. Earlier that day, the People’s Bank of China (PBOC) set its daily reference rate at 7.2038, the softest since September 2023, breaching the 7.20 threshold for the first time since President Donald Trump’s 2016 election. That level is widely viewed as a symbolic red line signaling official policy intent toward the tightly managed currency, according to Bloomberg News.

The onshore yuan, which trades within a 2% band around the fixing and is more directly regulated by the PBOC, also fell to its lowest since September 2023.

Allowing the yuan to weaken could bolster China’s export competitiveness—crucial amid intensifying trade frictions—but comes with risks. A steep depreciation may trigger capital flight, fuel bearish sentiment toward the economy, strain U.S. relations, and derail any progress toward renewed trade negotiations. Conversely, maintaining a strong currency could further dampen exports and intensify economic headwinds. Delaying depreciation may also heighten market volatility when adjustment becomes unavoidable.

Tensions escalated further on Monday when President Trump threatened an additional 50% tariff on Chinese imports unless Beijing reverses retaliatory plans. The White House later confirmed the new 104% total tariff rate would take effect on April 9.

In response, China’s Ministry of Commerce vowed to “fight to the end,” unveiling countermeasures including reciprocal tariffs and export controls on rare earth materials—critical to U.S. supply chains. Hopes for a trade resolution dimmed further following these announcements.

Market watchers have anticipated a potential shift in China’s currency policy since the start of Trump’s second term, though Beijing has repeatedly affirmed its commitment to exchange rate stability.

Investors are now closely monitoring the central bank for direction on currency policy and signs of further monetary easing, as the latest tariff shock reverberates through global markets. A growing, though not unanimous, group of analysts now foresee a sharper depreciation of the yuan in the near term.

With inputs from Bloomberg News.

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