The Chinese yuan faces continued pressure as the government bond yields have retreated, potentially impacting currency stability. The People's Bank of China (PBoC) has injected liquidity into the banking sector while maintaining interest rates. As significant MLF loans mature, this liquidity move may limit short-term pressures on the yuan. Nonetheless, economic uncertainties and heightened U.S. trade restrictions pose challenges. Strategic policy shifts by Beijing could enhance business confidence, but external geopolitical tensions may lead to capital outflows, complicating the yuan's stability.
The Chinese yuan remains subdued as the 10-year government bond yield has pulled back. While yields remained above the range it recorded since the beginning of the year, further declines could weigh on the currency.
A steady rate policy could also help reduce immediate depreciation pressure on the yuan. However, economic risks could limit upside potential.
In this regard, Beijing's shifting policies could help restore business confidence and attract investment. A stronger private sector could provide support to long-term yuan stability.
External risks remain significant, with escalating U.S. trade restrictions targeting Chinese investment in key industries. Rising geopolitical tensions could weigh on the yuan by driving capital outflows.
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