China softensy yuan controls, sparking devaluation rumors

China is easing its grip on the yuan, stirring up speculation that it might let the currency devalue more to ease the pressure from the ongoing trade war with the U.S. Lee Hardman from MUFG Bank noted in a recent report that this change in policy could be on the horizon.

On Tuesday, the People’s Bank of China set the official dollar-yuan exchange rate at 7.2038. This is the first time since September 2023 that the rate has gone above 7.20. Hardman believes that for a more dramatic devaluation to happen, Chinese policymakers would need to change their current approach of keeping the yuan stable.

That said, if China successfully boosts domestic demand, the need for a large devaluation might lessen. Meanwhile, the onshore yuan has continued to weaken, with the dollar climbing to a 1.5-year high of 7.3386, according to FactSet.