Yuan weakens as fresh tariff war dogs post-holiday trade
SHANGHAI, Feb 5 (Reuters) - China's yuan weakened against the dollar on Wednesday in the first trading session after the week-long holiday, pressured by fresh trade disputes between the world's two largest economies.
Beijing on Tuesday slapped tariffs on U.S. imports in a rapid response to new U.S. duties on Chinese goods, renewing a Sino-American trade war as President Donald Trump sought to punish China for not halting the flow of illicit drugs.
But the losses in the yuan were capped by a persistent strengthening bias in central bank guidance, currency traders said, which they interpreted as an official attempt to rein in yuan weakness.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1693 per dollar, its strongest since Nov. 8, 2024 and 968 pips firmer than a Reuters' estimate CNY=RTRS of 7.2661.
The central bank has been setting its official guidance on the firmer side of market projections since mid-November, which analysts and traders say is a sign of unease over the yuan's decline.
As of 0203 GMT, the onshore yuan CNY=CFXS was 0.65% lower at 7.2852 to the dollar, compared with the previous close of 7.2469 last week.
While the onshore yuan was closed for the Lunar New Year holiday since last Tuesday, its offshore counterpart CNH=D3 has shed 0.6% against the dollar during the period and hit a lifetime low this week.
Investors will see any attempts by China to weaken the currency as a hint Beijing expects a protracted trade war and is using the yuan to counter the effect of tariffs, as it did during Trump's first term in 2018.
"While the tariffs imposed on China are not as aggressive as those on Mexico and Canada, this marks the beginning of another leg of the long-running trade war, with risks of further escalation," analysts at Barclays said in a note.
"We see intensified downside risk to the CNY and other Asian currencies such as KRW, MYR, and THB."
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