5 days ago
Yuan Holds Steady as United States Iran Sanction Threats Grow
The yuan is China’s currency, and it has stayed almost unchanged against the United States dollar this week.
This happened even as the United States threatened more sanctions related to China’s business with Iran.
The United States has announced measures against some businesses in China and Hong Kong, but not major Chinese banks so far.
Some traders think the yuan is strong because China is exporting a lot of goods and the dollar is weakening.
China’s central bank also appears comfortable with the yuan rising slowly.
Other experts warn that sanctions against a large Chinese bank could hurt the currency.
The yuan has already risen nearly 4% this year.
Most analysts expect it to strengthen gradually by the end of the year.
The market is also watching comments from the Federal Reserve and possible future United States-China tensions.
The onshore yuan traded in its tightest weekly range since early 2016, near its strongest level since 2023.
The currency gained 0.3% against a basket of trading-partner currencies and is up nearly 4% this year.
United States sanctions targeting Chinese businesses over ties to Iran have so far stopped short of major Chinese financial institutions.
Analysts cite strong Chinese exports, gradual appreciation policy and broader United States dollar weakness as support for the yuan.
Some strategists warn that sanctions against a major Chinese bank or a canceled United States-China summit could pressure the currency.
- Who
- China, the United States, Iran, currency traders and market strategists.
- What
- The yuan has remained stable despite growing United States sanction threats linked to China’s ties with Iran.
- Where
- In onshore and offshore yuan markets, amid China-Iran financial and trade ties.
- When
- During the reported week; further United States sanctions were expected by the end of that week, with forecasts extending to year-end.
- Why
- The yuan is being supported by strong Chinese exports, China’s external surplus, expectations of gradual appreciation and broader weakness in the United States dollar, although possible sanctions create downside risks.
Supportive yuan outlook
Sanction downside risks
Near-term currency impact
Supportive yuan outlook
Strategists say the yuan can remain resilient as long as United States measures do not directly target major Chinese financial institutions.
Sanction downside risks
Some market participants recommend hedging against yuan weakness because sanctions could disrupt China’s financial links or increase market anxiety.
Main forces driving the yuan
Supportive yuan outlook
Strong exports, China’s external surplus, positive year-end seasonality, gradual appreciation signals and a weaker dollar could push the yuan higher.
Sanction downside risks
A major sanction against a Chinese bank could create financial-market shock, while broader political tensions could weigh on the currency.
Expected direction
Supportive yuan outlook
SEB, Standard Chartered Bank and Credit Agricole CIB strategists see room for further yuan gains, with forecasts near 6.60 to 6.65 per dollar by year-end.
Sanction downside risks
Historical sanctions against Bank of Dandong and Bank of Kunlun were followed by weaker yuan performance in those years, providing a warning for investors.
Key facts
- Weekly yuan range
- The onshore yuan traded between 6.7188 and 6.7264 per United States dollar.
- Trading range
- The weekly range was the tightest since early 2016.
- Performance
- The yuan gained 0.3% against a basket of trading-partner currencies and nearly 4% against the dollar this year.
- Current level
- The yuan traded around 6.72 per dollar.
- Sanctions
- United States measures targeted businesses in China and Hong Kong but had not yet targeted major Chinese financial institutions.
- Forecasts
- SEB forecast the yuan could reach 6.60 per dollar by year-end, while Standard Chartered Bank cited a 6.65 target.
- Market volatility
- Offshore yuan implied volatility was near its lowest level since 2015.
Quotes
Christopher Wong
Strategist at Oversea-Chinese Banking Corp.
“China’s massive external surplus driving FX settlement, positive seasonality into year-end and currency policy signals suggest a still supportive attitude toward gradual yuan gains”
livemint.com
“Dollar-yuan wouldn’t be here if there’s some anxiety over prospective US sanctions against China”
livemint.com
Sources
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