Chinese companies and investors are betting that Beijing will keep the yuan stable for now and eventually allow it to weaken as trade frictions with the U.S. persist. Signals from the People’s Bank of China (PBOC) suggest this expectation may be accurate.
Despite the dollar’s decline against most major currencies, the yuan has remained in a narrow range between 7.15 and 7.35 per dollar this year—its weakest in trade-weighted terms in over four years. Since April, it has firmed just 1.5% against the dollar, while regional currencies like the Thai baht and Korean won have rallied much more sharply.
Businesses are stockpiling dollars and increasingly using currency swaps to hedge against possible depreciation. Foreign exchange deposits rose 19% in the first five months of 2025 to nearly $1 trillion, while currency swaps grew 10% year-on-year.
The PBOC has carefully set daily guidance rates to prevent excessive yuan strength and has encouraged mainland investors to diversify into offshore assets, adding some downward pressure on the currency. China’s export sector, a key driver of growth, faces steep U.S. tariffs of up to 55%. An agreement must be reached by August 12 to avoid further penalties. With such external risks, analysts expect the PBOC to prioritize a competitive currency.
According to ING’s Lynn Song, the yuan will likely stay within the 7 to 7.4 range this year as authorities balance stability and market pressures.