On December 3, 2023, the exchange rate of the Chinese yuan against the US dollar weakened, with the offshore yuan (USD/CNH) dropping below the 7.31 mark, reaching its lowest level since last November. A strong rebound in the US dollar is one of the main driving factors, especially amid Trump's renewed tariff threats, coupled with robust US manufacturing data pushing up the dollar index, putting pressure on the yuan's exchange rate. The onshore yuan exchange rate was reported at 7.2957, depreciating by 0.44% from the previous trading day.
As of this week, the dollar-yuan exchange rate has risen by 0.86%, maintaining an upward trend for six out of the past seven weeks. Part of the yuan's depreciation stems from market expectations of further reserve requirement ratio and interest rate cuts by the People's Bank of China. Yi Gang, the governor of the People's Bank of China, stated on December 2 that the central bank will continue to implement supportive monetary policy, particularly in 2024, continuing to advance an accommodative monetary policy direction to address the challenges of economic slowdown.
Furthermore, the forex market's attention is focused not only on the strength of the dollar but also on adjustments in China's economic policy. The yuan's downward trajectory might trigger more discussions on exchange rate control and economic growth momentum, with market expectations for future policy from the People's Bank of China likely becoming the focus of the forex market in the coming weeks.
Overall, the decline in the yuan exchange rate is a result of the combined effects of changes in the global economic situation, Trump's tariff threats, and expectations of adjustments in China's monetary policy. These macro factors are expected to continue profoundly impacting the forex market in the future.
