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    ForexJournal » Economic » USD/CNH drops to near 7.2500 following Trump’s optimism on China, PBoC measures
    Economic

    USD/CNH drops to near 7.2500 following Trump’s optimism on China, PBoC measures

    Author AvatarBy Jack Lawson January 25, 2025 No Comments 9 Mins Read
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    • USD/CNH drops to the monthly low at 7.2475 on Friday.
    • Trump stated that he “would rather not have to use tariffs on China” and is hopeful about reaching a deal.
    • PBOC maintained the interest rate at 2.00% and injected 200 billion Yuan through a one-year MLF to financial institutions.

    USD/CNH, representing the US Dollar (USD) against the offshore Chinese Yuan (CNH), breaks its three-day losing streak, trading around 7.2510 during the Asian session on Friday. The CNH gains ground as US President Donald Trump stated that he “would rather not have to use tariffs on China” and is hopeful about reaching a deal. Trump’s remarks came after his conversation with China’s President Xi Jinping on Thursday, hinting at potential progress in US-China trade negotiations.

    Additionally, risk sentiment improved following late Thursday’s remarks from Trump at the World Economic Forum in Davos, Switzerland. Trump said he wants the US Federal Reserve (Fed) to cut interest rates immediately. “With oil prices going down, I’ll demand that interest rates drop immediately, and likewise they should be dropping all over the world,” Trump said.

    China’s Commerce Ministry stated on Thursday that they are “willing to work with the US to promote stable and healthy economic and trade relations.” The Ministry added that “tariff measures are detrimental to China, the US, and the global economy.” These remarks came in response to US President Donald Trump’s threat of a 10% tariff on Chinese imports.

    On Friday, the People’s Bank of China (PBOC) maintained the interest rate at 2.00% and injected 200 billion Yuan ($27.46 billion) through a one-year medium-term lending facility (MLF) to selected financial institutions, according to Reuters.

    Additionally, Chinese authorities on Thursday introduced several measures to stabilize its stock markets, including allowing pension funds to increase investments in domestic equities. A pilot scheme enabling insurers to purchase equities will be launched in the first half of 2025, with an initial scale of at least 100 billion Yuan.

    PBOC FAQs

    The primary monetary policy objectives of the People’s Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.

    The PBoC is owned by the state of the People’s Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.

    Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

    Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.

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    Article Source : fxstreet Website

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    Jack Lawson

    Jack Lawson is a seasoned financial strategist with over 20 years of experience navigating the complexities of global markets, specializing in Forex and cryptocurrency. His expertise blends deep analytical skills with a keen understanding of market psychology, making him a trusted voice in the financial community. Jack’s nuanced approach to market trends, combined with his ability to distill complex data into actionable insights, has earned him a reputation for providing invaluable guidance to both seasoned investors and emerging traders. His writing is marked by a sophisticated yet accessible style, reflecting his commitment to empowering others in their financial journey.

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