China yuan firms after Bessent pick weighs on dollar
SHANGHAI, Nov 25 (Reuters) -China's yuan firmed on Monday with the dollar slipping after the nomination of prominent fund manager Scott Bessent as U.S. Treasury Secretary undercut Trump trades.
The yuan was also bolstered by emerging views that Beijing may keep the currency stable as a countermeasure to a potential trade war under Donald Trump's second term, meaning a sharp depreciation is unlikely.
"A stable RMB might better serve China's interests in Trade War 2.0 by preserving its ability to export inflation while minimising domestic economic disruptions," OCBC analyst Tommy Xie wrote in a note to clients.
The yuan changed hands at 7.2428 around midday, a bit firmer than Friday's close. The central bank continued to support the currency through its official midpoint, setting guidance at the strongest level in a week.
Meanwhile, the dollar index .DXY dropped 0.7% in morning trade, headed for its worst day in three months.
"The news that Scott Bessent had been nominated by Trump as his Treasury Secretary has markets considering a less radical and more conventional economic policy thrust," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
U.S. 10-year bond yields US10YT=RR fell to roughly 4.25% on Monday morning, dragging on the dollar, as Bessent is considered a fiscal conservative.
Maybank said in a research note "the greenback can tend to be softer in December and Bessent's nomination may be seen to be a development to allow for this seasonality to play out."
The government's removal or reduction of export tax rebates for certain goods last week have added to market views that the authorities will unlikely allow a large depreciation in the yuan as a way to counter Trump's trade war against China.
"China may target Trump's capacity to wage a prolonged trade war, with U.S. inflation emerging as a critical vulnerability," said OCBC's Xie. "RMB depreciation effectively subsidises U.S. consumers by offsetting the inflationary effects of tariffs."
Gavekal Dragonomics said that if Trump does deliver on his tariff threats, "Beijing's response may be to amplify U.S. inflationary pain by helping push global commodity prices higher."
LEVELS AT 03:35 GMT GMT | |||||
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan <CNY=CFXS | 7.2433 | 0.04 | -1.95 | 7.2377 | 7.2449 |
Offshore yuan spot CNH=D3 | 7.248 | 0.17 | -1.69 | 7.2404 | 7.2498 |
Reporting by Shanghai newsroom; Editing by Jacqueline Wong
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