Chinese investors are anticipating the yuan to dip as tensions around US tariffs continue. There has been a rise in foreign exchange deposits at banks and currency swaps, move which hints at investors anticipating a dip in the yuan’s value. The development could lead to curbs on the de-dollarization movement.
Yuan Gains Against The US Dollar
Chinese investors expect the yuan to hold steady against the US dollar for now before facing a dip. Even more, People’s Bank of China (PBOC) is in a dilemma. A sudden movement of the yuan could lead to businesses and households selling billions of dollars. The move could be motivated by opportunities “to catch better yuan levels or to stave off losses.”
Such a development could stress China’s de-dollarization motives. The country has spearheaded the move away from the greenback over the last decade.
The yuan has gained 1.5% against the US dollar since April 2 of this year. The development coincides with the beginning of President Trump’s tariff spree. The tariffs seem to have led to a dip in confidence in US policymaking. In a surprising development, the US dollar’s “safe haven” label seems to be weakening.
According to Lynn Song, chief economist for Greater China at ING, “The PBOC has been prioritising currency stability for quite some time, so while most of the focus the past couple of years has been on preventing rapid depreciation, this also applies to manage the pace of appreciation as we’re now seeing.“
Also Read: BlackRock Says Surging US Debt Could Fuel De-Dollarization
While there is a growing de-dollarization sentiment globally, the movement away from the dollar seems far-fetched. Despite being brushed off as illogical, the growing US debt has added further fuel to the de-dollarization fire.