Analysis: Why China’s Yuan Is Set to Strengthen

Published: May. 22, 2025 6:38 p.m. GMT+8

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After U.S. President Donald Trump launched a global tariff war on April 2, the dollar fell sharply. Yet unlike other major currencies, the Chinese yuan did not follow the typical pattern of strengthening against a weakening greenback.

This reflects market concerns that China might be allowing depreciation to offset potential export losses.

However, this assumption overlooks the increasingly weak link between exports and yuan movements. Rather, the redback’s future path hinges more on the Federal Reserve’s rate cycle and domestic corporate profitability.

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The yuan’s movements are now influenced more by U.S. Federal Reserve rate cycles and Chinese corporate profitability, rather than exports or U.S. tariff policy.
Since late 2023, the historical correlation between exports and the yuan has weakened; although exports recovered, the yuan stayed around 7-7.3 per dollar.
Stabilizing corporate ROE and anticipated Fed rate cuts suggest China’s four-year yuan depreciation cycle may soon reverse, potentially starting appreciation between May and July.

AI generated, for reference only

Who’s Who

DH Fund Management Co. Ltd.: According to the article, DH Fund Management Co. Ltd. is a fund management company based in Zhejiang province. Xu Xiaoqing, the director of macro strategy at this company, contributed analysis on the yuan’s trajectory. No further details about DH Fund Management Co. Ltd. are provided in the article.

AI generated, for reference only