Investing.com — The Chinese yuan fell on Tuesday, with the key USD/CHN yuan pair hitting a seven-month high after a weak mid-term reform by the People’s Bank of China, while concerns about the trade war with the West were also present.
The yuan pair, which measures the number of yuan needed to buy one dollar, rose as much as 0.1% to 7.2628, its highest level since mid-November.
The initial weakness in the yuan came after the People’s Bank of China set a weaker interest rate for the currency as of Monday. This reform came amid increasing selling pressure against the yuan, as sentiment towards China deteriorated.
The offshore yuan was much weaker, with the pair rising past 7.28, also hitting a seven-month high.
While the People’s Bank of China has so far tried to maintain some stability in the yuan against recent selling pressure, the latest bout of weakness in the currency suggests the central bank may have no choice but to let the yuan fall in the near term.
The People’s Bank of China (PBOC) has so far kept a tight grip on the yuan through mid-term reform and market operations. It reportedly intervened in currency markets earlier this year to support the yuan in the face of a wave of selling pressure.
But sentiment toward China has soured significantly in recent weeks, especially since Beijing has signaled the possibility of a trade war due to tariffs on imports of Chinese electric cars by the United States and the European Union.
European tariffs have been a major point of contention for China, given that the region is a key market for local electric vehicle makers. Chinese automakers were also seen calling for retaliatory tariffs on European car imports.
Chinese and German ministers met this week to discuss tariffs scheduled to be imposed in July.
In addition to concerns about the trade war, Canada is also seen as likely to join the United States and the European Union in imposing restrictions on Chinese electric vehicles, which are seen as providing stiff competition to domestic automakers.