The Chinese yuan dropped to a four-month low against a strengthening U.S. dollar on Monday, as Asian currencies took a hit following U.S. President-elect Donald Trump’s announcement of potential hefty tariffs on BRICS nations.
In a social media post on Sunday, Trump threatened 100% tariffs on BRICS countries — Brazil, Russia, India, China, and South Africa — warning of severe economic repercussions for any nation attempting to challenge the U.S. dollar’s global dominance by adopting alternative currencies. The announcement heightened concerns over potential disruptions in trade relations, sending shockwaves through Asian markets.
This latest threat follows Trump’s earlier pledge to raise tariffs on imports from China, Mexico, and Canada, stoking fears of a renewed trade war among the world’s major economies. The escalating tensions weighed heavily on risk-sensitive Asian markets, pressuring regional currencies.
The U.S. Dollar Index gained 0.5%, while U.S. Dollar Index Futures rose 0.4%, underscoring the dollar’s appeal as a global safe-haven currency.
Among Asian currencies, the South Korean won and Japanese yen saw the steepest declines, with the USD/JPY pair rising 0.6% and the USD/KRW pair climbing 0.7%. Meanwhile, the Singapore dollar and Thai baht also weakened, with their USD/SGD and USD/THB pairs falling 0.5% each.
The Indian rupee hit a record low, with the USD/INR pair advancing 0.2% to 84.708. The rupee was further weighed down by data released on Friday showing that India’s GDP growth slowed in the July-September quarter compared to the previous quarter. Despite this, India retained its position as the world’s fastest-growing major economy, outpacing China’s 4.6% growth during the same period.Yuan Faces Pressure Despite Strong Economic Data
The Chinese yuan’s onshore USD/CNY pair rose 0.3%, reaching its highest level since late July, but showed limited response to positive purchasing managers’ index (PMI) data for November.
Official data revealed that China’s manufacturing PMI for November posted modest growth, indicating a recovery in factory output, while the private-sector Caixin PMI climbed to its highest level since June. These figures are seen as encouraging signs for the Chinese economy, following two months of aggressive stimulus measures.
Nevertheless, concerns linger over the impact of escalating trade tensions on China’s sluggish exports. The yuan weakened by 1.8% against the dollar in November, fueled by fears of an intensifying U.S.-China trade conflict, particularly after President-elect Trump’s victory.
Dollar Gains as Markets Await Key Rate and Economic Data
The U.S. dollar opened the week and month on a strong note, supported by expectations of a more gradual rate cut trajectory by the Federal Reserve. While a 0.25% rate cut is broadly anticipated at the Fed’s December meeting, investors remain eager for further clarity on the central bank’s outlook.
Key events this week include a speech by Fed Chair Jerome Powell on Wednesday and the release of U.S. nonfarm payrolls data for November later in the week.
In the Asia-Pacific region, the Reserve Bank of India is set to announce its interest rate decision on Friday, with analysts expecting rates to remain unchanged amid persistently high inflation. Additionally, Australia will release its third-quarter GDP figures on Wednesday, offering further insights into the region’s economic landscape.
