China's yuan steady, markets remain on edge over US tariff policy

SHANGHAI, April 15 (Reuters) - China's yuan held steady against the U.S. dollar on Tuesday even as markets grappled with the Trump administration's back-and forth changes in tariffs.

Since President Donald Trump announced reciprocal tariffs on April 2, sparking tit-for-tat duties on each other's goods, trade relations between the world's two largest economies have become the primary factor affecting the yuan.

The spot yuan CNY=CFXS opened at 7.3050 per dollar and was last trading at 7.3086 as of 0306 GMT, 4 pips firmer than the previous late session close and 1.37% weaker than the midpoint.

"The recent U.S. tariff hikes have put depreciation pressure on the yuan. However, the dollar has also weakened against other major currencies, contrary to what most have expected before," said UBS economists led by Tao Wang in a note.

Trump's mixed signals on tariffs targeting several economies have left investors dazed, hurting confidence in U.S. assets including the dollar.

The UBS economists have downgraded their forecasts on China's GDP growth, saying the tariff shock poses unprecedented challenges to China's exports. They expect the onshore yuan to trade around 7.5 by the end of 2025.

Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.2096 per dollar, the second weakest level since September 2023.

But it was still around 1000 pips firmer than a Reuters' estimate CNY=RTRS of 7.3094.

Markets are increasingly concerned that the PBOC may chose currency depreciation as one of the tools to fight the deflationary impact of the U.S. tariffs, despite a measured approach to weakening the fix, Citi analysts said in a note.

China's trade-weighted CFETS yuan basket index .CFSCNYI was down at 96.41 to its lowest level since July 25, 2023.

The dollar index =USD, which measures the U.S. currency against six other units, was at 99.71, hovering near a three-year low, as Trump's erratic implementation of tariffs damages confidence in the world's reserve currency. The index is down over 4% this month.

The U.S. lifted duties on smartphones and other electronics from China over the weekend, offering some respite. However, remarks from Trump indicated that this relief might be short-lived.

The offshore yuan traded at 7.3133 yuan per dollar CNH=, down about 0.01% in Asian trade.

LEVELS AT 0306 GMT