The attention of financial markets has recently been focused on China. The unexpected strengthening of the offshore yuan against the US dollar has triggered a wave of optimism among investors, and Chinese stocks are showing positive dynamics. The main catalyst for these movements has been signs of a possible resumption of dialogue between Washington and Beijing on key trade issues. Let's explore what lies behind these changes and how the potential rapprochement between the two largest economies in the world could affect global sentiment and markets.
On Friday, against the backdrop of this news, the offshore yuan (the USD/CNY pair, reflecting the dollar's exchange rate to the yuan outside mainland China) showed a noticeable decline, dropping to its lowest values in the last four weeks. The exchange rate reached around 7.26 yuan per dollar. This means that the yuan has strengthened against the US currency. Over the past month, the USD/CNY pair has lost 0.31%, signaling growing confidence in the Chinese currency, although over the past year, the yuan is still showing a 0.92% increase against the dollar.
The main reason for this positive shift is the growing hopes of investors for a possible resumption of dialogue between the US and China on trade issues. According to reports from the Ministry of Commerce of China, US representatives have made numerous attempts in recent days to establish contact through various channels to discuss tariff matters. China confirmed that it is considering the possibility of such negotiations amid ongoing tensions.
However, Beijing has once again made its position extremely clear: for a serious dialogue to begin, Washington must "correct its wrongful actions" by lifting all unilaterally imposed tariffs and ensuring equal treatment. Chinese officials emphasized that they appreciate the recent diplomatic efforts of the US, but for substantial negotiations to commence, Washington must show "sincerity." The ministry also warned that "mixed signals" from the US could undermine mutual trust.
It is worth recalling that tensions in trade relations between the two countries seriously escalated during the Trump administration. At that time, the US imposed high tariffs on Chinese goods (up to 145% on certain categories), which provoked retaliatory measures from Beijing (up to 125%). These actions disrupted the balance in financial markets, negatively impacted global supply chains, and put pressure on global economic growth. That is why any signs of softening rhetoric or steps toward dialogue are perceived by the markets with such optimism. The strengthening of the offshore yuan against the dollar is often seen as a direct indicator of improved sentiment regarding the Chinese economy and trade prospects.
Against the backdrop of these shifts in trade rhetoric, we also see positive signals in China's stock market. For example, shares of the major technology company Tencent Holdings reached a 4-week high, rising to 485.80 Hong Kong dollars. Despite a 2.93% decline over the past month, Tencent shows an impressive growth of 32.6% over the year, indicating long-term investor confidence in the Chinese technology sector despite macroeconomic challenges.
Thus, the current movements in China's currency and stock markets are closely linked to the diplomatic activity between Beijing and Washington. Any signs of progress in trade relations are perceived by investors with optimism, fueling demand for Chinese assets, including the yuan. However, the path to a complete resolution of trade disputes is still long, and markets will closely monitor every signal from both sides, remaining sensitive to any changes in this complex dialogue.
