By The Chinese yuan suffered its sharpest one-day decline in three years Thursday, plummeting 2% against the U.S. dollar as markets reacted to President Trump’s proposed 50% tariffs on Chinese goods. The dramatic move forced the People’s Bank of China (PBOC) to take emergency stabilization measures.
PBOC’s Defense Playbook:
- Dollar Sales: Estimated $15B in forex interventions
- Forward Guidance: Stronger-than-expected daily fix at 7.29
- State Bank Orders: Major lenders told to limit dollar purchases
Market Mechanics:
- Offshore yuan (CNH) volatility spikes to 11.2 (highest since 2020)
- 1-month risk reversals show traders pricing in further 3% drop
- Yuan funding rates in Hong Kong’s offshore market (CNH) exploded to 5.8%
“This is currency war brinkmanship,” said Standard Chartered’s Eddie Cheung. “China appears willing to tolerate depreciation up to 7.50, which would effectively offset Trump’s tariffs.”
Global Spillover:
- EM Currencies: Indonesian rupiah hits 4-year low
- Commodities: Copper prices drop 3% on China demand fears
- Debt Markets: Dollar bond yields for Chinese developers spike 200bps
Analysts warn sustained yuan weakness could:
- Trigger competitive devaluations across Asia
- Force the Fed to delay rate cuts
- Accelerate capital outflows from emerging markets