President Trump’s recent tariff spree has caused shockwaves around the world. Global stock markets witnessed stellar dips on Monday, Apr. 7. The currency market has also faced similar repercussions. The Chinese yuan has fallen to its lowest level against the US dollar since 2023.
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US Dollar Gains Against The Chinese Yuan
The dip came after the Chinese central bank loosed its grip on the currency in an attempt to hinder tariff blows.
According to Ju Wang, head of Greater China FX & rates strategy, BNP Paribas, “After the market saw China’s firm retaliation on Friday, expectation for China to eventually devalue the currency has jumped and the pressure won’t go away easily.“
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The Chinese yuan’s dip could lead to cheaper exports. The development could also ease China’s trade and economy. On the other hand, a steeper dip could lead to capital outflow and financial instability.
Beijing has slapped a 34% reciprocal tariff on the US. President Donald Trump has threatened China with an additional 50% tariff if it does not withdraw its decision. President Trump has given China until Tuesday to revoke its 34% tariff.
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China has long pursued a de-dollarization agenda. The People’s Bank of China said that they have signed currency swap agreements with 40 foreign banks. The Chinese yuan has seen an increase in global trade settlements over the last few years. Economist Jin Keyu says trade invoicing in the yuan has increased from 0% to 30% in the last 10 years.
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The latest tariff war could fuel the de-dollarization movement even further. How and when global trade will settle down is yet to be seen.