USD/CNY is trading lower, EUR/CNY – higher – Danske Bank

FXStreet Insights Team FXStreet

The CNY has gained versus the USD lately, but it is more a story about USD weakening than CNY strength. The rate spread between US and China has thus narrowed as weaker US data has pushed US bond yields lower, Danske Bank's FX analysts Kristoffer Kjær Lomholt and Filip Andersson report.

PBOC keeps USD/CNY fixing stable around 7.17-7.18

"PBOC continues to keep the USD/CNY fixing stable around 7.17-7.18 in line with their repeated message of a preference for stability. We have been surprised that they haven't let the fixing increase following the 20% increase in US tariffs, but it suggests they are keen on keeping the cross stable."

"Maybe in order to not antagonize Trump and risk more tariffs but likely also to provide some anchor of stability in a world in flux, much as they have done previously, for example during the Asian crisis in 1997/98. It does put some downside risk to our 7.60 12M forecast. With the relative stability in the USD/CNY, the changes in EUR/USD transmit directly into the EUR/CNY cross and hence we have seen it move higher with the increase in EUR/USD."

"As we still see the USD gaining in the medium to long term, the current weaker levels of CNY should be considered to hedge expenses. Not least as the world has become more unpredictable and FX moves can quickly reverse as we have seen recently."

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FXStreet Insights Team

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