Investing.com — The Chinese yuan weakened on Tuesday, with the key USDCNY-dollar pair hitting a seven-month high after a weak midpoint fix from the People’s Bank, while concerns about a trade war with the West also played a role.
The yuan pair, which measures the number of yuan needed to buy one dollar, rose as much as 0.1% to 7.2628, the highest level since mid-November.
The yuan’s initial weakness came after the People’s Bank of China set a weaker mid-rate for the currency from Monday. The resolution came amid mounting selling pressure on the yuan as sentiment toward China deteriorated.
The offshore yuan was much weaker, with the pair rising past 7.28 and also hitting a seven-month high.
While the PBOC has so far tried to maintain some stability in the yuan despite recent selling pressure, the currency’s latest bout of weakness suggests the central bank may have no choice but to let the yuan depreciate in the near term.
The PBOC has so far kept a tight grip on the yuan through the midpoint fix and market operations. It had reportedly intervened in currency markets earlier this year to protect the yuan from an onslaught of selling pressure.
But sentiment toward China deteriorated significantly in recent weeks, especially as Beijing flagged the possibility of a trade war over tariffs on Chinese electric vehicles by the U.S. and European Union.
European tariffs have been a major point of contention for China as the region is a key market for local EV manufacturers. Chinese automakers were also seen calling for retaliatory tariffs on imports of European vehicles.
Chinese and German ministers met this week to discuss the tariffs, which will be imposed in July.
In addition to trade war concerns, it was also seen that Canada could join the US and EU in imposing restrictions on Chinese electric cars, which are seen as a source of stiff competition for local automakers.
