SHANGHAI: The yuan fell against the U.S. dollar to its weakest level in nearly four months after U.S. President-elect Donald Trump said he would impose a 25 per cent tariff on all products from Mexico and Canada, and an additional 10 per cent tariff on goods from China.
Offshore yuan dropped roughly 0.3 per cent on the news to 7.2730 per dollar, its lowest level since July 30, while onshore yuan opened down at 7.2524 per dollar.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2 per cent band, at 7.1910 per dollar, which was 450 pips firmer than the Reuters' estimate.
During Trump's first term as president, the yuan weakened about 5 per cent against the dollar after the initial round of U.S. tariffs on Chinese goods in 2018, and fell another 1.5 per cent a year later when trade tensions escalated.
As part of his pitch to boost American manufacturing during the recent election campaign, Trump said he would impose tariffs of 60 per cent or more on goods from China.
The proposed tariffs, as well as other policies such as tax cuts, are seen as inflationary and likely to keep U.S. interest rates relatively high, hurting currencies of U.S. trading partners.