The ongoing trade tensions between the United States and China are playing out throughout different
forex markets as the dollar continues to lose value. But is a strengthened renminbi in China’s interests?
USD/CNY ended the first half of 2025 1.8% down as United States President Donald Trump introduced reciprocal tariffs in a move that prompted a series of rapid trade war escalations with China.
The move initially saw the dollar gain significant ground on the renminbi as fears over China’s trade appeal began to fade. However, a de-escalation in tensions has seen the yuan climb to an
eight-month high against the USD as Trump continues to position himself at odds with the US economy in the short term.
Tariffs and the Big Beautiful Bill
One of the biggest emerging complications for USD/CNY is the narrow passing of Trump’s so-called ‘Big Beautiful Bill,’ in a move that’s projected to add
$3.3 trillion to government debt over the coming 10 years.
While the Big Beautiful Bill has caused the dollar to weaken, April’s tariff escalation with China, which saw levies briefly accelerate to 145% before a de-escalation brought negotiations between the nations, caused the yuan to struggle.
April saw the yuan fall to its lowest levels since 2023 after the People’s Bank of China (PBoC)
loosened its grip on the currency in a bid to maintain the nation’s appeal as a trading partner to other nations.
Logically, a weaker yuan can be a functional means of offsetting the financial impact of tariffs on imports from China. With the deadline between the United States and China to negotiate a trade agreement set to
expire in August, the outcome of any prospective trade agreement will have a decisive effect on USD/CNY.
China Pursues Stability
With Asia responsible for the majority of the United States’ trillion-dollar trade goods deficit, it’s reasonable to expect the renminbi to experience plenty of external pressures over the second half of 2025, regardless of its resilience against the dollar.
Given that the PBoC manages the yuan through a daily fixing mechanism, the central bank has plenty of power to strengthen or weaken the currency in a bid to manage the impact of its trade challenges with the United States.
While some analysts have speculated that it could be in the interests of the PBoC to weaken the yuan further to recapture its appeal as a global trade destination, experts have suggested that China will instead
seek to stabilise the renminbi against the dollar.
Fears over the impact of a sharp devaluation of CNY and its ramifications in triggering capital outflows and widespread financial market instability indicate that China would be incapable of weakening the yuan to offset the impact of tariffs should a trade
deal fail to be agreed upon.
ING analysts suggest that China’s decision to only set a small move higher in its price fixings during the peak depreciation period of the yuan in April shows that the PBoC won’t actively seek to devalue the currency in the face of exceptionally high tariff
pressures.
Trading in Volatility
With China avoiding taking drastic measures to instead maintain its pursuit of stability, the outlook of USD/CNY will likely be decided by the Trump administration and its control over trade.
According to ING, a long-term de-escalation on trade would upgrade the medium-term outlook for the yuan, sparking greater capital inflows, while US Federal Reserve rate cuts could help to support renminbi growth further as investors look overseas for opportunities.
Given President Trump’s openness in communicating news frequently on social media, it’s clear that volatility in USD/CNY will persist throughout 2025, regardless of the outcome of trade negotiations between the United States and China.
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Stability and Unpredictability
China’s bid to introduce more stability to the yuan at a time when the currency is increasingly exposed to market volatility means that the United States will likely be positioned at the forefront of movements between the USD/CNY pair.
The outcome of the trade negotiations between the United States and China before the August reciprocal tariff deadline will be decisive in shaping USD/CNY over the second half of 2025. However, the best trading opportunities will come from anticipating the
twists and turns over the weeks ahead.
With Trump’s openness to comment on the performance of ongoing negotiations, there’s likely to be plenty of uncertainty ahead for the trading pair. For
forex traders with a higher risk appetite, there will also be many trading opportunities in the near future.
