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Forex market analysis: 11 February 2025

The yuan held steady on Tuesday as traders weighed ongoing trade tensions and expectations for US interest rates. While China’s central bank took steps to support the currency, the offshore yuan (USDCNH) remained in a tight range. Investors are now focused on Federal Reserve Chair Jerome Powell’s upcoming speech, which could impact the US dollar and influence the yuan’s next move. Yuan maintains narrow trading range The offshore yuan (USDCNH) traded within a tight range on Tuesday, peaking at 7.31441 before settling at 7.30935. Similarly, the onshore yuan remained near recent lows, reflecting ongoing depreciation pressure as trade tensions continue to escalate. The latest decision by former US President Donald Trump to increase tariffs on steel and aluminium imports to 25% has heightened concerns about inflation and global trade disruptions. This move follows earlier tariff hikes on Chinese goods, prompting retaliatory measures from China on US energy and other commodities. Despite these factors, the yuan’s decline remained controlled as traders awaited further economic developments. PBOC attempts to stabilise the yuan, but dollar strength persists In an effort to prevent excessive yuan weakness, the People’s Bank of China (PBOC) set the midpoint rate at 7.1716 per US dollar—1,351 pips stronger than market expectations. This suggests that Chinese authorities are actively managing the exchange rate to prevent sharp depreciation. Since mid-November, the PBOC has consistently fixed the yuan stronger than market estimates, indicating concerns over capital outflows. Analysts note that while the central bank can stabilise short-term fluctuations, the risk of long-term depreciation remains if trade tensions persist. Fed policy takes centre stage Beyond trade-related pressures, investors are closely monitoring Federal Reserve Chair Jerome Powell’s upcoming testimony before the Senate. His insights on inflation, monetary policy, and the impact of tariffs could influence the US dollar’s direction. According to the CME FedWatch Tool, markets anticipate the Fed will maintain interest rates at its March meeting, with a higher likelihood of a 25-basis-point cut only by mid-2025. If Powell adopts a hawkish tone, the dollar may strengthen further, potentially pushing USDCNH higher. Conversely, any indication of dovishness or rate cuts could ease dollar strength, allowing the yuan to stabilise or recover slightly. Technical analysis USDCNH remains above the 7.3 level, with resistance at 7.31441 and support at 7.30721, suggesting a consolidation phase.

The USDCNH is moving sideways, showing a relatively flat trajectory with minor oscillations, as seen on the VT Markets app. Technical indicators, including the MACD and moving averages, do not yet indicate a clear breakout, keeping the pair range-bound. A move above 7.3150 could see prices rise towards 7.3250, while a drop below 7.3070 may pave the way for further declines towards 7.2900. Market participants remain cautious, awaiting key catalysts. Powell’s testimony: A crucial moment for the yuan With trade tensions lingering and Powell’s speech on the horizon, the yuan’s next movement will largely depend on the Fed’s stance and China’s policy response. If Powell reinforces a strong dollar outlook, USDCNH could test the 7.3150 level and beyond. However, a more cautious Fed approach could provide some relief for the yuan, keeping the pair stable near 7.3 in the short term. In the coming sessions, traders will closely watch developments in the trade dispute, PBOC interventions, and Powell’s remarks for further direction.

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Publication date:

2025-02-11 12:46:18 (GMT)

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