China's yuan hit its lowest against the dollar since the global financial crisis on Thursday, with the central bank cutting guidance for the sixth successive trading session amid an intensifying Sino-U.S. trade war.
Beijing has imposed steep tariffs on U.S. imports in response to similar U.S. action. Though U.S. President Donald Trump said he would temporarily lower duties recently imposed on dozens of countries, he increased those on Chinese goods.
"The U.S. and China are currently in a powerplay game of brinkmanship," said ING global head of markets Chris Turner.
"Until a deal is announced or a big, bilateral meeting confirmed, USD/CNY will now be the focal attention of the FX market."
A weaker yuan would make Chinese exports cheaper and alleviate tariff impact on the economy. However, a sharp decline could also increase unwanted capital outflow pressure and risk financial stability, analysts and economists said.
The central bank will not allow sharp yuan declines and has instructed major state-owned lenders to reduce dollar purchases, people with knowledge of the matter told Reuters.
The onshore yuan slipped to 7.3518 a dollar in early trade, its weakest since December 26, 2007. It pared intraday losses and traded 0.02% higher at 7.3428 as of 0516 GMT, but was still down about 1.2% this month.
Its offshore counterpart was at 7.3558 at 0516 GMT, down 0.14%. It hit an all-time low of 7.4288 on Tuesday.
Prior to market open, the People's Bank of China set the midpoint - around which it allows the yuan to trade in a 2% band - at 7.2092, the weakest since September 11, 2023. That compared with the 7.3484 Reuters estimate.
The central bank has been lowering the midpoint at a measured pace, with Thursday's cut contributing to the day's decline, traders said.
The PBOC loosened its grip on the yuan this week by allowing the currency to weaken past 7.2. Still, its guidance is stronger than market projections in what traders and analysts interpreted as an attempt to keep the yuan steady.
The steadily weaker guidance dragged down its value against major trading partners. The CFETS yuan basket index, a gauge that measures the yuan against a basket of currencies, fell to 98.18 on Thursday, the lowest since September 2024, according to Reuters calculations based on official data.
The bank is focusing on a steady yuan even as the trade war challenges the competitiveness of China's export sector, indicating that stability remains the priority.
"A modest, gradual depreciation of the yuan is still the preference," Societe Generale economists said in a client note.
China will only allow gradual depreciation as stability matters for confidence in Chinese assets, and the tariffs are "just too big to be offset by FX depreciation," they said.
Separately, China and Hong Kong shares rose on Thursday. The Hong Kong dollar hovered near a four-year high against the dollar on persistent inflows through the southbound leg of the stock trading link. It last traded at 7.7616 as of 0516 GMT.
Mainland investors purchased more than HK$35 billion ($4.51 billion) worth of Hong Kong stocks on Wednesday, the highest on record.
Marco Sun, chief financial market analyst at MUFG Bank, said a strong Hong Kong dollar was critical for the financial hub during times of heightened financial market volatility.
"And the renminbi is likely to enter a period of orderly depreciation," he said. ($1 = 7.7616 Hong Kong dollars)
