USD/CNH: the pressure is increasing on the yuan

The yuan accentuates its decline while the dollar takes advantage of its safe haven aspect

The yuan is increasingly under pressure against its US counterpart. The Chinese currency fell to its lowest level in almost two years due to the numerous headwinds on the economy. The world’s second largest economy is not only facing a slowdown in demand in developed economies, but also major domestic crises.

The Chinese economy is slowing down due to the real estate crisis that has hit the country for a year, Xi Jinping’s zero covid policy which regularly forces major cities to confine themselves and the strong tensions on the electricity market in the country due to severe droughts.

All of these constraints have sharply reduced economic activity in China, prompting the government to act by announcing recovery plans that focus primarily on public infrastructure. The People’s Bank of China (PBC) also supports the government’s efforts, but does not want to do too much to limit capital outflows from foreign investors.

Faced with a yuan weakened by all these crises, the dollar is privileged because of the extremely rapid monetary tightening of the Fed, the equally gloomy outlook in Europe with the energy crisis and the increasingly strong risk aversion of market investors.

USD/CNH weekly price chart – key levels


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