Forex market analysis: 11 February 2025
The yuan held steady on Tuesday as traders weighed ongoing trade tensions and expectations for US interest rates. While China’s central bank took steps to support the currency, the offshore yuan (USDCNH) remained in a tight range. Investors are now focused on Federal Reserve Chair Jerome Powell’s upcoming speech, which could impact the US dollar and influence the yuan’s next move.
Yuan maintains narrow trading range
The offshore yuan (USDCNH) traded within a tight range on Tuesday, peaking at 7.31441 before settling at 7.30935.
The offshore yuan (USDCNH) traded within a tight range on Tuesday, peaking at 7.31441 before settling at 7.30935.
Similarly, the onshore yuan remained near recent lows, reflecting ongoing depreciation pressure as trade tensions continue to escalate.
The latest decision by former US President Donald Trump to increase tariffs on steel and aluminium imports to 25% has heightened concerns about inflation and global trade disruptions.
This move follows earlier tariff hikes on Chinese goods, prompting retaliatory measures from China on US energy and other commodities.
Despite these factors, the yuan’s decline remained controlled as traders awaited further economic developments.
PBOC attempts to stabilise the yuan, but dollar strength persists
In an effort to prevent excessive yuan weakness, the People’s Bank of China (PBOC) set the midpoint rate at 7.1716 per US dollar—1,351 pips stronger than market expectations.
In an effort to prevent excessive yuan weakness, the People’s Bank of China (PBOC) set the midpoint rate at 7.1716 per US dollar—1,351 pips stronger than market expectations.
This suggests that Chinese authorities are actively managing the exchange rate to prevent sharp depreciation.
Since mid-November, the PBOC has consistently fixed the yuan stronger than market estimates, indicating concerns over capital outflows.
Analysts note that while the central bank can stabilise short-term fluctuations, the risk of long-term depreciation remains if trade tensions persist.
Fed policy takes centre stage
Beyond trade-related pressures, investors are closely monitoring Federal Reserve Chair Jerome Powell’s upcoming testimony before the Senate.
Beyond trade-related pressures, investors are closely monitoring Federal Reserve Chair Jerome Powell’s upcoming testimony before the Senate.
His insights on inflation, monetary policy, and the impact of tariffs could influence the US dollar’s direction.
According to the CME FedWatch Tool, markets anticipate the Fed will maintain interest rates at its March meeting, with a higher likelihood of a 25-basis-point cut only by mid-2025.
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