As of January 21, 2025, the Chinese yuan surged against the U.S. dollar, trading at approximately 7.269 per dollar, following President Donald Trump's inaugural address, where he adopted a softer tone towards China and notably refrained from mentioning tariff policies [85352333]. This marked a significant recovery from a previous low of above 7.31, with the offshore yuan showing a notable rebound [85352333]. The People's Bank of China (PBOC) also set the midpoint rate at 7.1703, the strongest since early November, indicating a coordinated effort to stabilize the currency amidst ongoing trade tensions [85352333].
The yuan's recent performance can be linked to a broader context where China's economy grew by 5.4% in the fourth quarter of 2024, exceeding expectations and contributing to a full-year growth of 5% [5782cced]. However, the currency remains under pressure due to Trump's threats of imposing tariffs up to 60% on Chinese imports during his second term, which could reignite trade tensions [5782cced]. Financial markets are still anticipating potential depreciation, with analysts predicting a decline of 5-6% by the end of 2025 [efa1071d].
Despite the positive movement in the yuan, concerns linger regarding the strength of the U.S. dollar, which has reached two-year highs, and the potential for slowed rate cuts by the U.S. Federal Reserve [85352333]. PBOC Governor Pan Gongsheng has emphasized the importance of maintaining trust in the yuan amidst these turbulent market conditions. The PBOC plans to issue offshore RMB central bank bills to manage liquidity, which is expected to help stabilize the yuan further [588004eb].
China's foreign exchange reserves stood at $3.2024 trillion at the end of December 2024, with projections that they will remain above $3 trillion [588004eb]. However, domestic economic conditions necessitate currency stability to prevent capital flight, as the country grapples with deflation and weak demand, with retail sales declining [dc26347c]. Policymakers are introducing consumption vouchers to stimulate economic activity, but the overall outlook remains precarious as the yuan's depreciation raises the risk of a broader currency war in Asia [dc26347c].
Analysts from Goldman Sachs predict that the yuan could weaken further to 7.40 in three months and 7.50 in six to twelve months, while BNP Paribas anticipates a drop to 7.45 by year-end [607a2179]. The market will be closely watching the PBOC's interventions and the yuan's performance, especially with key U.S. economic data, including December's nonfarm payrolls report, on the horizon [43a81b1a].