How the US and India Pulled Back From a Trade War

Michael Ross

Energy

Remarks of Officials

Economic

Daily News

Political

Summary:

A surprise US-India trade deal caps tense diplomacy, reflecting vital economic and strategic ties despite India's autonomy.

A surprise trade agreement announced by President Donald Trump has capped months of tense, behind-the-scenes diplomacy aimed at repairing a strained relationship between the United States and India. The deal, which Trump claimed would significantly lower tariffs, came after a period of public acrimony that saw both nations on a collision course.

On Monday, Trump announced that he and Indian Prime Minister Narendra Modi had reached an agreement to reduce tariffs on Indian goods to 18%. The deal also reportedly scraps a punitive 25% US duty imposed on India for purchasing Russian oil. In exchange, Trump stated that India agreed to buy $500 billion in American goods, shift its oil purchases to Venezuela, and cut tariffs on US imports to zero.

However, Modi's government has not yet confirmed these specifics, and official documentation codifying the agreement has not been released by either side. The announcement caught many officials in New Delhi by surprise, with senior bureaucrats in the commerce and foreign ministries unaware that a call between the leaders was even scheduled.

A Diplomatic Thaw Behind Closed Doors

The breakthrough follows a period of concerted effort by India to de-escalate tensions. In early September, shortly after meeting with Vladimir Putin and Xi Jinping, Modi sent his national security adviser, Ajit Doval, to Washington.

According to officials in New Delhi familiar with the private discussions, Doval met with Secretary of State Marco Rubio to deliver a clear message: India wanted to move past the recent friction and resume trade negotiations.

Doval reportedly conveyed that while India would not be bullied by the Trump administration and was prepared to wait out his term, New Delhi needed the public criticism to stop so that relations could be reset. At the time, India was reacting to Trump's public insults and the 50% tariffs he had imposed on its goods in August. The US president had described India as a "dead" economy and criticized its purchases of Russian oil.

The first sign of a thaw appeared not long after Doval's previously unreported meeting. On September 16, Trump called Modi on his birthday, praising his leadership. The two leaders spoke four more times by phone before the end of the year, steadily working toward a deal.

India's Long-Term Bet on a US Partnership

Behind India's diplomatic push was a strategic calculation that it could not afford a long-term breakdown in relations with the United States. The prevailing view in New Delhi is that American capital, technology, and military cooperation are essential to counter China and achieve Modi's ambitious goal of making India a developed economy by 2047.

Indian officials see the Trump presidency as a temporary challenge within a much longer strategic timeline. "New Delhi was never going to sever relations with Washington," noted Chietigj Bajpaee, a senior research fellow at Chatham House, pointing to the deep institutional and personal ties between the countries. However, he added that "the irrational exuberance that marked New Delhi's earlier assessments of the bilateral relationship have faded."

This approach was a response to a sharp downturn in relations. Tensions flared in May after Trump claimed credit for resolving a border clash between India and Pakistan, a claim Modi strongly rejected. In June, Modi declined an invitation to the White House, and in October, he skipped a summit in Malaysia to avoid a potentially difficult meeting with Trump.

Mending Fences After a Year of Acrimony

The arrival of new US Ambassador Sergio Gor in New Delhi in December marked a turning point. Gor, a former White House official and member of Trump's inner circle, immediately began working to restore stability. In his first public speech, he characterized the tensions as disagreements among "real friends" and announced that India would be invited to join Pax Silica, a US-led supply chain alliance.

Last week, a meeting between Gor and External Affairs Minister Subrahmanyam Jaishankar signaled further progress. Gor posted on social media that they discussed "everything from defense, trade, critical minerals, and working toward our common interests."

Alexander Slater, former head of the US-India Business Council, said the agreement "appears to conclude a difficult six-month period for US-India relations" and "removes a key impediment to what had been India's gradual but steady alignment with the West."

Balancing US Ties with Strategic Autonomy

Despite the rapprochement, India continues to assert its strategic independence. Modi's high-profile appearance with Xi and Putin was widely seen as a message to Washington that India has other powerful partners. In December, Modi gave a warm welcome to Putin, reaffirming ties with a nation that has been a key supplier of weapons since the Cold War.

India has also been diversifying its trade relationships. Last week, it secured a free trade pact with the European Union after nearly two decades of negotiations. This followed a recent trade deal with the UK, moves intended to show that India was not solely dependent on a resolution with the US. Later this month, Modi is set to host leaders Mark Carney of Canada and Luiz Inacio Lula da Silva of Brazil, further strengthening ties with other global middle powers.

The Unbreakable Economic Ties Driving the Deal

Ultimately, the powerful economic logic of the US-India partnership continues to drive both sides toward cooperation. The United States remains a critical market, receiving about a fifth of India's total exports, including a large volume of mobile phones and electronics vital to Modi's manufacturing goals.

Furthermore, US investment in India is surging. Recent months have seen major commitments, including:

• A combined $52 billion pledge from Amazon.com Inc. and Microsoft Corp. in December.

• A $15 billion investment in data centers announced by Alphabet Inc.'s Google in October.

"The larger geopolitical factors or strategic factors that bind Indian and the US together are still in place," said Milan Vaishnav of the Carnegie Endowment for International Peace. "India requires a great amount of capital of investment of technology transfer... So the US is critical."

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Political

The End Of The Last Nuclear Constraint

The New Strategic Arms Reduction Treaty, widely known as New START, is set to expire on February 5, marking a potentially historic rupture in global nuclear governance. If no last-minute intervention occurs, this will be the first time in decades that there is no legally binding framework limiting the strategic nuclear arsenals of the United States and Russia, the two countries that together possess roughly 90 percent of the world’s nuclear warheads.

New START was signed in 2010 and caps each side at 1,550 deployed strategic nuclear warheads, alongside strict limits on intercontinental ballistic missiles, submarine-launched ballistic missiles, and heavy bombers. Beyond numerical ceilings, the treaty has functioned as a cornerstone of strategic transparency, enabling hundreds of on-site inspections and tens of thousands of data exchanges over more than a decade. These mechanisms have reduced uncertainty and lowered the risk of miscalculation, even during periods of political tension.

A Treaty Hollowed Out Before Its Expiry

Although New START technically remains in force until early February, its practical effectiveness has already been eroded. Inspection mechanisms have been suspended since 2023, weakening mutual confidence and verification. Donald Trump has recently signaled a willingness to let the treaty lapse, while Moscow has stated that it is prepared for a new strategic reality in which no formal limits exist on nuclear forces.

From Russia’s perspective, the lack of response from Washington to proposals for maintaining warhead ceilings is interpreted as a clear political signal. The result is a transition not caused by a single decision, but by a gradual breakdown of trust and compliance that now culminates in formal expiration.

China’s Role In Shaping US Calculations

While New START is a bilateral treaty, analysts argue that China has become the central factor shaping US reluctance to preserve it. Washington’s concern increasingly lies not with Russia’s existing arsenal, but with the rapid expansion of China’s nuclear forces and the strategic flexibility this creates for Beijing.

China has rejected calls for trilateral nuclear arms control talks, arguing that the disparity between its arsenal and those of the US and Russia makes such a framework inherently unfair. On February 3, Beijing urged Washington to respond constructively to Russia’s proposal to maintain limits on deployed warheads, while reiterating that it would not join three-party negotiations.

Data from the Stockholm International Peace Research Institute indicates that China currently possesses at least 600 nuclear warheads and has been adding roughly 100 warheads per year since 2023, the fastest expansion rate globally. By comparison, the United States holds around 3,700 warheads in its military stockpile, while Russia has more than 4,300.

Strategic Shifts In Beijing

China’s longer-term trajectory reinforces these concerns. Recommendations linked to its 15th Five-Year Plan for the 2026–2030 period emphasize strengthening strategic deterrence, signaling continued modernization and expansion of nuclear forces. While detailed targets are expected to be clarified when the plan is formally approved in March 2026, the direction suggests an intent to narrow the gap with the two established nuclear superpowers.

This evolution reflects correlation rather than direct causation between China’s buildup and the collapse of New START, yet the interaction between these dynamics is clear. US policymakers want to retain room to adjust their own deployed warhead numbers, a flexibility constrained under the treaty’s current limits.

The Risk Of A Three-Way Arms Race

Analysts warn that the collapse of New START could trigger a chain reaction of strategic escalation. The United States could increase the number of warheads mounted on existing missile systems, while Russia may accelerate development of unconventional nuclear delivery platforms, including nuclear-powered cruise missiles or long-range nuclear torpedoes. These systems carry heightened environmental and security risks and further complicate deterrence calculations.

China’s limited transparency regarding its nuclear program adds another layer of uncertainty. This opacity feeds suspicion in Washington, prompting defensive responses that Beijing then interprets as additional threats. The resulting feedback loop risks entrenching a three-sided arms race without the stabilizing guardrails that characterized much of the Cold War era.

Experts in Australia and Europe caution that such a race would be inherently more unstable than past US–Soviet competition, precisely because it would lack robust mechanisms for verification, communication, and crisis management.

A Breakdown Of A Long-Standing Architecture

From the SALT agreements of the 1970s to the START framework that followed the Cold War, US–Russian nuclear arms control has underpinned global strategic stability for decades. However, key pillars of this architecture have already fallen. The ABM and INF treaties collapsed in the past two decades, leaving New START as the final major restraint.

Its expiration would therefore represent not just the end of a single treaty, but the dismantling of an entire system of nuclear risk management. In a world already marked by multiple geopolitical flashpoints and intensifying great-power competition, the absence of any legal limits on nuclear arsenals is widely viewed as a significant setback for global security.

An Uneasy Global Outlook

Without New START, the risk of nuclear proliferation increases, and so does the danger of miscalculation during crises. The loss of transparency and predictability raises the probability that worst-case assumptions will drive decision-making. While no actor openly seeks such an outcome, the convergence of strategic rivalry, declining trust, and expanding arsenals creates conditions in which stability becomes harder to sustain.

As New START approaches its expiration, the world stands at the edge of a new nuclear era defined less by negotiated restraint and more by strategic ambiguity, a shift that carries profound implications for international security.

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Economic

A Weak Start Revealed By Official PMI Data

China’s economy has begun 2026 on a fragile footing, with new official data pointing to a sharper-than-expected slowdown in activity. According to figures released by the National Bureau of Statistics of China, the official manufacturing purchasing managers’ index fell to 49.3 in January from 50.1 in December, undershooting economists’ consensus forecast of 50.1. A reading below 50 indicates contraction, signaling that factory activity has slipped back into decline.

This data release marks the first official snapshot of China’s economic health this year and follows a deceleration in fourth-quarter growth in 2025 to its weakest pace since the post-Covid reopening period. The January PMI print suggests that momentum has not stabilized and that the industrial sector remains under pressure despite last year’s strong export performance.

Non-Manufacturing Sectors Also Lose Momentum

More concerning for policymakers and investors alike is that the slowdown is not confined to manufacturing. The non-manufacturing PMI, which covers construction and services, dropped to 49.4 from 50.2 in December. This was not only below market expectations of 50.3 but also marked the lowest reading since December 2022.

The decline in services and construction activity indicates that weakness is spreading across multiple pillars of the economy. Rather than reflecting a narrow industrial adjustment, the data points to a broader cooling in domestic demand, reinforcing fears that consumption and investment have yet to recover in a meaningful and sustained way.

Beyond Seasonal Factors

Economists caution that the sharp deterioration in January cannot be fully explained by seasonal distortions linked to the Lunar New Year. While holiday-related disruptions often affect activity data at the start of the year, the magnitude and breadth of the decline suggest a more fundamental imbalance between supply and demand.

Business confidence has weakened noticeably, amplifying downside risks. Analysts interpret this as a clear signal that policy support may need to be strengthened to stabilize expectations and prevent further erosion in corporate sentiment. The relationship here reflects correlation rather than simple causation, as falling confidence both influences and responds to softer economic conditions.

Exports Carry The Load As Domestic Demand Falters

China managed to meet its official growth target of around 5 percent in 2025, largely thanks to a record trade surplus that offset declines in private consumption and investment. However, this export-led support has also intensified global trade frictions and left the economy more exposed to external shocks.

As domestic demand remains weak, manufacturing prospects are becoming increasingly dependent on overseas markets. This reliance creates vulnerabilities at a time when protectionist pressures are rising and trade relations remain strained, limiting the reliability of exports as a long-term growth engine.

Shifting Growth Priorities In Beijing

Looking ahead, expectations for 2026 have turned more cautious. Policymakers in Beijing are widely believed to be considering a more flexible stance on growth, with speculation that China could lower its national growth target for the first time in four years.

Xi Jinping has recently signaled greater tolerance for slower growth in certain regions while emphasizing the need to rein in what he described as “reckless” projects. This messaging reflects a clearer prioritization of growth quality over speed, suggesting a strategic recalibration rather than an abrupt policy pivot.

At the regional level, more than a dozen provinces, including Guangdong, China’s largest manufacturing and technology hub, have already lowered their growth targets for 2026. Economists surveyed now expect China’s GDP to expand by around 4.5 percent this year, down from last year’s pace.

Policy Expectations And Lingering Constraints

In monetary policy, markets anticipate that the People's Bank of China may cut banks’ reserve requirement ratio by about 25 basis points in the first quarter. This would be a more modest move than previously expected, reflecting the central bank’s continued preference for targeted easing rather than broad-based stimulus.

However, without large-scale fiscal or monetary support, analysts warn that China may struggle to break out of an uneven growth pattern. Structural challenges persist, including local government debt risks and mounting trade protectionism from global partners, extending beyond advanced economies to include emerging markets such as South Africa.

Taken together, January’s PMI data paints a sobering picture of China’s economic trajectory at the start of the year. The unexpected contraction across both manufacturing and services underscores how fragile the recovery remains. While policymakers appear willing to accept slower growth in pursuit of longer-term stability, the absence of stronger stimulus measures could leave the economy vulnerable to further downside risks as 2026 unfolds.

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Owen Li

Economic

Remarks of Officials

Central Bank

China is launching a major push to build a unified national market, a strategic pivot designed to unleash domestic consumption and power its next phase of growth, a top economic official announced.

Speaking at an Asia-Pacific Economic Cooperation (APEC) meeting in Shanghai, Vice Finance Minister Liao Min outlined the country's plan to shift toward new, demand-driven growth drivers. This move comes as economies across Asia navigate a "pivotal juncture" in the global economic landscape.

"We are pressing ahead with building a unified market to further unleash domestic demand and consumption potential," Liao stated, highlighting that services consumption is already showing strong momentum. "The Chinese economy will be increasingly demand-driven."

Why the Old Export-Led Model Is Breaking Down

This strategic shift addresses growing unsustainability in China's economic model. While the country met its 5% growth target last year, the expansion was lopsided. Exports accounted for a third of the growth, while domestic demand remained sluggish.

This reliance on exports is becoming increasingly precarious amid rising global protectionism. Internally, the model has fueled issues like industrial overcapacity and prolonged price wars, which have intensified trade tensions with global partners. Beijing has now officially designated boosting domestic demand as its top economic priority for the year.

Dismantling Barriers to Fuel Consumption

The core of the new strategy involves dismantling long-standing local protectionism and inter-provincial trade barriers. Chinese authorities have repeatedly identified these internal obstacles as key factors that suppress consumption and distort the market.

To reassure trading partners concerned about a flood of Chinese goods, the government also announced it will cancel or reduce tax rebates on hundreds of products, including solar cells and batteries, starting April 1. This measure is part of a broader effort to manage excess manufacturing capacity.

Recent Stimulus and Policy Support

In support of this new focus, Chinese authorities have already rolled out several targeted measures to stimulate consumption and investment. These initial steps include:

• Public Spending: An initial plan worth US$51 billion (RM200.56 billion) for investment in key national projects.

• Consumer Subsidies: Financial support for a consumer goods trade-in program.

• Monetary Easing: The People's Bank of China delivered a 25-basis-point cut to interest rates on its structural monetary policy tools.

• Credit Incentives: The Ministry of Finance unveiled a series of loan perks to encourage borrowing by both businesses and consumers.

Navigating Domestic Headwinds and Global Risks

Despite these efforts, significant challenges remain. There is growing expectation that Beijing will lower its national economic growth target this year, reflecting entrenched deflation, a multi-year housing slump, and weak corporate and household confidence.

Concerns over debt risks and thinning profit margins at banks will also likely prevent policymakers from deploying more aggressive, large-scale stimulus. This cautious sentiment is already being reflected at the local level, with over a dozen Chinese provinces reducing their economic growth targets for 2026 after President Xi Jinping signaled greater tolerance for slower expansion and warned against wasteful investment.

In his speech, Liao acknowledged the complex global environment, citing ongoing volatility, rising geopolitical tensions, and supply-chain disruptions. However, he emphasized that the Asia-Pacific remains one of the world's fastest-growing regions, with technology and digital transformation unlocking tremendous economic potential despite "persistent headwinds."

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Economic

Commodity

Gold Surges After Historic Sell-Off

Gold prices extended gains for a second consecutive session, reclaiming the $5,000 per ounce threshold as investors moved back into the market following an unusually sharp correction from record highs. In early trading on February 4, gold rose as much as 2.1 percent, adding to a surge of more than 6 percent in the previous session. At around 8:12 a.m. Vietnam time, spot gold was trading at $5,048.55 per ounce.

Silver followed a similar trajectory, climbing 2.1 percent to $86.90 per ounce, while platinum and palladium also recorded gains. The synchronized rebound across precious metals suggests a return of risk tolerance rather than isolated technical buying in gold alone.

Market Volatility And Investor Positioning

According to Daniel Ghali, senior commodity strategist at TD Securities, the forced liquidation phase that recently swept through precious metals markets appears to have largely passed. However, he cautioned that the extreme volatility seen over the past week may prompt many retail investors to temporarily step back, reducing demand from a segment that has become increasingly influential in driving price momentum.

This reflects a correlation between heightened price swings and short-term investor caution rather than a fundamental shift in gold’s underlying investment appeal.

Speculation And Structural Drivers Behind The Rally

Gold’s sharp rise last month was fueled by a combination of speculative momentum, geopolitical uncertainty, and growing concerns over the independence of the US Federal Reserve. These factors contributed to aggressive positioning across futures, options, and leveraged exchange-traded funds, amplifying price movements.

China-based investment funds and Western retail investors accumulated substantial positions, while strong inflows into leveraged ETFs and a wave of call option buying further intensified the rally. However, the pace of gains became increasingly difficult to sustain, setting the stage for a sudden reversal.

The Correction And Its Aftershocks

Market participants had warned that the rally was unfolding too quickly. That caution proved prescient late last week, when the upward momentum abruptly stalled. Silver experienced its largest single-day drop on record, while gold posted its steepest decline since 2013. The initial sell-off during the Asian trading session on January 30 quickly spilled over into subsequent sessions, reinforcing the sense of fragility beneath the market’s rapid ascent.

Despite the severity of the pullback, the speed of the rebound suggests that underlying demand has not evaporated, but rather paused as positions were recalibrated.

Outlook Remains Firm Despite Ongoing Swings

Looking ahead, analysts expect volatility in precious metals to remain elevated. Bank of America Corp. has warned that sharp price fluctuations are likely to persist, though it maintains a more constructive long-term view on gold than on silver. Niklas Westermark, head of commodity trading for EMEA at Bank of America, noted that gold’s investment narrative is structurally stronger and more resilient.

While elevated prices and market turbulence may limit the size of individual positions, this is unlikely to diminish overall investor interest. Several major banks continue to project further upside, with Deutsche Bank AG reiterating its forecast that gold prices could ultimately reach $6,000 per ounce.

Taken together, the latest rebound highlights a market adjusting to excesses rather than abandoning its bullish thesis. Gold’s return above $5,000 underscores its role as both a speculative asset and a long-term store of value in an environment marked by uncertainty and shifting monetary expectations.

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Russia-Ukraine Conflict

Energy

Remarks of Officials

Economic

Political

Donald Trump announced a landmark trade deal between the United States and India on Monday, outlining terms that could significantly reshape economic and geopolitical alignments. While Indian Prime Minister Narendra Modi confirmed an agreement had been reached, he stopped short of validating the specific details Trump shared.

According to Trump’s statement, the deal involves the U.S. lowering tariffs on Indian imports to 18%, while India would eliminate its tariffs on U.S. imports entirely. He also claimed Modi agreed to cease purchasing Russian oil, replacing it with supplies from the U.S. and potentially Venezuela. Furthermore, Trump said India committed to buying $500 billion in American energy, technology, agricultural goods, and other products.

However, this announcement warrants caution, as Trump incorrectly claimed late last year that India had already halted Russian oil purchases. If his account of the new deal is accurate this time, the agreement would be truly historic.

Economic Shockwaves for India's Agricultural Sector

The potential domestic impact on India could be profound. With 42% of the Indian population employed in agriculture, the arrival of tariff-free U.S. agricultural products could threaten the livelihoods of millions. Such a disruption could trigger a mass migration from rural areas to cities, potentially leading to significant socio-economic turbulence and political unrest if not managed carefully.

Prime Minister Modi may be calculating that this risk is worth taking. Increased investment from the U.S. and the EU—which secured its own trade deal with India last month—could create new employment opportunities to offset the agricultural displacement. This high-stakes gamble appears to be driven by a combination of macroeconomic ambitions and pressing security concerns.

Why Modi Might Accept a High-Stakes Gamble

The motivations behind India's potential concessions seem to be threefold: accelerating economic growth, reasserting regional dominance, and responding to geo-economic pressures.

From a macroeconomic perspective, the deal aims to supercharge India's GDP, which was already projected to grow by 7.4% this year despite existing 50% U.S. tariffs. This could help India achieve its goal of becoming the world's third-largest economy by 2030 or even sooner.

On the regional security front, the agreement would restore India's status as the primary U.S. partner in South Asia, a position recently challenged by rival Pakistan. This move could preempt a scenario where the U.S. might use Pakistan and its partner Bangladesh to undermine India's rise.

Geo-economically, India has been navigating a complex landscape. The punitive 25% U.S. tariffs for importing discounted Russian oil are becoming increasingly costly. With the U.S. now offering similarly priced Venezuelan oil as an alternative, the calculus may have shifted. Simultaneously, threatened U.S. sanctions related to business with Iran, coupled with concerns over that country's stability, have made the North-South Transport Corridor through Iran to Russia an unviable option for now. This economic pressure likely pushed India toward prioritizing a deal with the U.S.

Ripple Effects for Russia, China, and BRICS

If the details announced by Trump hold true, it signals that India is recalibrating its grand strategy toward the West, largely as a result of economic coercion. This pivot could have several major international implications:

• A reduced strategic focus on the BRICS alliance.

• A slowdown in efforts to diversify away from the U.S. dollar.

• An increase in defense deals with the United States.

• New challenges in maintaining its recent rapprochement with China.

The most immediate strategic dilemma would fall on Russia. If India, a major customer, stops importing its discounted oil, Moscow would face a critical choice. To stabilize its budget and the ruble, Russia could either become more dependent on China to absorb its oil exports or agree to difficult compromises with the U.S. over Ukraine in exchange for phased sanctions relief.

This decision would have the power to dramatically shift the global balance, tilting it further in favor of either China or the United States. Should this Indo-U.S. trade deal force Russia's hand, it will indeed be remembered as a historic turning point.

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Alexander

Traders' Opinions

Remarks of Officials

Economic

Central Bank

Forex

Bank of America has upgraded its forecast for the Chinese yuan, joining a growing consensus among Wall Street firms that Beijing will allow its currency to strengthen further. The move signals rising confidence in the yuan's rally, which has been gaining momentum in recent weeks.

Other major institutions, including Goldman Sachs, Morgan Stanley, and Australia & New Zealand Banking Group, have also recently revised their yuan estimates upward as the currency's advance accelerates.

Major Banks Revise Yuan Targets Upward

Bank of America now projects the onshore yuan will reach 6.7 per U.S. dollar by the end of the third quarter, a notable revision from its previous forecast of 6.8.

Claudio Piron, head of Asia rates and currency strategy at BofA Global Research, cited "robust exports and firmer policy signals" as key factors behind the new forecast. "The yuan's strength is spilling into broader emerging-market FX gains," he noted.

Goldman Sachs also sees continued strength, forecasting the yuan will hit 6.80 in six months and 6.70 in twelve months. The bank credits this outlook to greater tolerance from Chinese policymakers and record capital inflows.

Key Drivers Behind the Currency's Rally

The yuan's appreciation isn't happening in a vacuum. Several powerful forces are fueling its recent performance:

• Sustained Capital Inflows: A significant surge in capital flowing into China since last year has provided a strong foundation for the currency.

• A Weaker U.S. Dollar: Expectations that the United States may favor a weaker dollar have created a favorable environment for the yuan's rise.

• Support from Beijing: Recent comments from President Xi Jinping, detailed in state media, expressing an ambition for a "powerful currency" have bolstered investor confidence.

PBOC Signals Tolerance for Appreciation

Actions from the People's Bank of China (PBOC) have reinforced the bullish sentiment. On Wednesday, the central bank set its daily reference rate for the yuan at its strongest level since May 2023. This followed a move last month where the PBOC raised the "fixing" by the largest margin in over a year.

The policy signals have translated directly into market performance. This week, the yuan touched its strongest point in nearly three years in both onshore and overseas trading.

Managing the Risks of a Rapid Rise

Despite the widespread bullishness, analysts believe the PBOC will aim for a managed and orderly pace of appreciation. A currency that strengthens too quickly could pose risks to China's formidable export engine and attract speculative "hot-money" inflows.

According to strategists at TD Securities, the central bank could adjust "structural FX parameters" if the yuan's appreciation becomes too sudden. Potential policy tools include:

• Removing risk reserves on foreign exchange forward sales.

• Increasing the reserve requirements on foreign exchange.

These measures would allow the PBOC to moderate the currency's ascent without derailing its overall trajectory.

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How the US and India Pulled Back From a Trade War

A Diplomatic Thaw Behind Closed Doors

India's Long-Term Bet on a US Partnership

Mending Fences After a Year of Acrimony

Balancing US Ties with Strategic Autonomy

The Unbreakable Economic Ties Driving the Deal

New START On The Brink And The Global Risks Of A World Without Nuclear Limits

The End Of The Last Nuclear Constraint

A Treaty Hollowed Out Before Its Expiry

China’s Role In Shaping US Calculations

Strategic Shifts In Beijing

The Risk Of A Three-Way Arms Race

A Breakdown Of A Long-Standing Architecture

An Uneasy Global Outlook

China’s Economy Stumbles At The Start Of 2026 As PMI Data Signals Broad-Based Weakness

A Weak Start Revealed By Official PMI Data

Non-Manufacturing Sectors Also Lose Momentum

Beyond Seasonal Factors

Exports Carry The Load As Domestic Demand Falters

Shifting Growth Priorities In Beijing

Policy Expectations And Lingering Constraints

China's Plan to Unlock Domestic Consumer Power

Why the Old Export-Led Model Is Breaking Down

Dismantling Barriers to Fuel Consumption

Recent Stimulus and Policy Support

Navigating Domestic Headwinds and Global Risks

Gold Reclaims $5,000 As Volatility Persists And Long-Term Bullish Forecasts Hold

Gold Surges After Historic Sell-Off

Market Volatility And Investor Positioning

Speculation And Structural Drivers Behind The Rally

The Correction And Its Aftershocks

Outlook Remains Firm Despite Ongoing Swings

Trump's US-India Trade Deal: A Global Power Shift?

Economic Shockwaves for India's Agricultural Sector

Why Modi Might Accept a High-Stakes Gamble

Ripple Effects for Russia, China, and BRICS

Why Wall Street is Betting Big on a Stronger Yuan

Major Banks Revise Yuan Targets Upward

Key Drivers Behind the Currency's Rally

PBOC Signals Tolerance for Appreciation

Managing the Risks of a Rapid Rise

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