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China’s currency is under pressure as investors weigh upbeat growth data against concerns over a fragile recovery. Despite signs of resilience, the outlook remains uncertain without stronger policy support. Markets now look to Beijing for clearer action to restore economic momentum.
Yuan slips on mixed outlook
China’s yuan edged lower against the US dollar on Tuesday, even after a stronger-than-expected GDP report.
The USD/CNH pair touched highs of 7.1782 before easing back to around 7.1776.
The mild upward move signals investor caution, as markets digest a mixed batch of economic indicators and continue to eye potential stimulus measures from Beijing.
Although second-quarter GDP figures came in above forecasts – highlighting resilience in China’s trade sector despite ongoing US tariffs – momentum in the broader economy remains fragile.
Without meaningful support for households and more assertive policy moves, there’s a risk that the recovery could stall in the second half of the year.
Technical analysis
USD/CNH recently rebounded to the 7.178 region, having broken above the 7.170–7.172 support band.
The alignment of the 5‑, 10‑, and 30‑period moving averages to the upside indicates strengthening bullish momentum in the short term.
Picture: Bullish momentum building; eyes on breakout above 7.180, as seen on the VT Markets app.
The MACD also remains in positive territory, with an expanding histogram that points to ongoing buying interest.
A confirmed break above the 7.180 level could pave the way for a move towards the 7.190–7.200 zone.
On the downside, 7.172–7.170 remains key support. A drop below that level could open the door to a deeper pullback into the 7.165–7.168 range.
PBOC fix sends a stabilising signal
Before markets opened, the People’s Bank of China (PBOC) set the daily yuan reference rate at 7.1498 – around 260 pips stronger than Reuters forecasts.
This move appears carefully designed to steady expectations and reduce market overreaction to softer economic undercurrents.
The firmer fix reflects Beijing’s desire to curb excessive depreciation, even as fundamentals continue to point toward a looser policy stance.
The yuan remains allowed to fluctuate within a 2% band around the daily midpoint, a mechanism that has helped the onshore yuan (USD/CNY) stay relatively stable near 7.1733.
Meanwhile, the offshore yuan (USD/CNH) slipped only marginally – down 0.04% to 7.1759 at last check.
Focus shifts to Politburo meeting and US inflation data
With Q2 GDP data now released, market attention turns to the upcoming Politburo meeting, which is expected to outline China’s economic priorities for the remainder of 2025.
The spotlight is likely to fall on the troubled property sector, where fresh housing data and media reports suggest targeted stimulus measures may be under discussion.
At the same time, traders are closely watching US Consumer Price Index (CPI) figures, due later today.
A stronger-than-expected reading could bolster the US dollar further, especially if it revives speculation that the Federal Reserve may delay easing – or even consider another rate hike this year.
Current market pricing reflects around 50 basis points of rate cuts by December, though this outlook could shift quickly depending on inflation trends.
Despite weaker fundamentals and ongoing geopolitical concerns, the yuan has remained surprisingly steady in recent weeks – thanks largely to strict policy control and strategic FX interventions.
However, the recent uptick in USD/CNH may signal growing pressure. Unless China introduces substantial fiscal or structural measures soon, the yuan could face further depreciation – particularly if the Fed maintains a hawkish tone.
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