Yuan Strengthens as US Dollar Confidence Wanes: China’s Recovery Challenges the Dollar’s Dominance

Economic

Forex

Summary:

The Chinese yuan is projected to appreciate further as domestic economic recovery surpasses expectations, while concerns over US public debt and fiscal policy put downward pressure on the US dollar....

Yuan Gains Momentum Amid China’s Better-Than-Expected Recovery

In early July, optimism about China's economy has fueled appreciation in the yuan, with the People's Bank of China (PBOC) setting the daily reference rate at 7.1534 per USD on July 1—the strongest level since November. Compared to Monday’s fixing of 7.1656, this marks a continued upward trajectory for the yuan.

In June alone, the onshore yuan appreciated 0.41% against the dollar, bringing its total gains to 1.2% in Q2 and 1.86% for the first half of 2025. These movements reflect market expectations that China’s internal recovery is more robust than previously anticipated.

Shift in Domestic Sentiment and Macroeconomic Resilience

According to Lisheng Wang, an analyst at Goldman Sachs, sentiment among domestic Chinese clients has notably improved since late April. Macroeconomic data suggest that while export performance still lags, domestic demand and resilience have exceeded forecasts. This recovery trend supports stronger capital inflows and more confidence in the yuan’s stability.

The positive shift is largely correlated with China's internal policy adjustments and stimulus efforts, which have helped stabilize demand and manufacturing activity. The improvement in market psychology plays a role in reinforcing this cycle, contributing to the currency’s appreciation.

US Dollar Faces Pressure From Public Debt Concerns

While China’s currency gains strength, the US dollar is experiencing downward pressure. International investors are increasingly concerned about the sustainability of America’s public debt, loose fiscal policies, and rising long-term borrowing costs. These concerns have weakened investor confidence in the dollar, prompting capital to shift toward alternative assets and currencies such as the yuan.

This situation reflects a broader loss of faith in the long-term soundness of US fiscal discipline, particularly as government debt levels rise and no strong consensus emerges on budgetary reforms. The weakening dollar is not just a reaction to economic fundamentals but also to a shift in perception regarding US economic governance.

Forecasts Point Toward Continued Yuan Strength

Goldman Sachs projects that the yuan will appreciate further, potentially breaching the psychological threshold of 7 per USD within six months, and reaching 6.9 within a year. These projections are grounded in China's ongoing domestic recovery and expectations that trade tensions may stabilize further following recent progress in negotiations.

This expectation also takes into account the substantial volatility seen earlier this year. On April 9, the yuan hit its weakest level of 2025 at 7.3506, primarily due to rising US-China trade tensions and retaliatory tariffs that pushed bilateral duties beyond 100%. However, after a truce agreement and progress during the London negotiation rounds last month, the yuan staged a recovery. Its fluctuation range in the first half of the year was about 2.6%.

US-China Talks and Trade Conditions Remain Key Variables

Analysts believe the currency’s performance for the remainder of the year will depend significantly on US-China trade relations. Wang suggests that improved sentiment at home and continued negotiations could bolster China’s export performance in the latter half of the year.

Meanwhile, Citic Securities notes that the yuan has shown relative stability since June as the US dollar weakens. A narrowing spread between onshore and offshore exchange rates has reduced the pressure on PBOC to intervene in foreign exchange markets, suggesting that market forces are gradually aligning.

While remaining US tariffs continue to weigh on Chinese exports, Citic emphasizes that the yuan’s short-term trajectory will depend more on domestic policy support and the direction of bilateral trade negotiations than on external monetary developments.

The strengthening of the yuan in recent months highlights more than just short-term currency fluctuations. It signals a deeper structural adjustment in global investor confidence, where China's internal economic stability contrasts with growing fiscal unease in the US. Although uncertainties remain—particularly around trade and tariffs—the yuan appears poised to challenge the dollar's dominance more decisively, at least in the near term. The outcome will ultimately depend on policy discipline from both nations and how effectively each manages their respective economic vulnerabilities.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Blue River

Technical Analysis

The calm in today’s Asian forex session belies a volatile backdrop forming beneath the surface. Dollar remains pinned near at bottom of the performance board this week, despite a shallow bounce. Investors are keeping their powder dry ahead of several key catalysts: Thursday’s non-farm payrolls report, the looming July 9 tariff truce deadline, and a pivotal House vote on US President Donald Trump’s USD 3.3 trillion tax-and-spending bill. Volatility looks set to rise as these themes come to a head.

So far this week, Swiss Franc is the best-performing major currency, followed by Yen and Euro, suggesting defensive positioning remains intact. Sterling and Loonie trail the field after Dollar, while Aussie and Kiwi sit in middle positions.

The US Senate narrowly passed Trump’s legislation overnight—thanks to a tie-breaking vote from Vice President JD Vance. The measure now faces another battle in the House before July 4, where Republicans hold only a slim majority. Passage would intensify deficit concerns already weighing on Dollar.

Fed Chair Jerome Powell’s remarks at the ECB Forum yesterday were deliberately noncommittal, reiterating that all decisions depend on incoming data. With inflation still running above target and tariff uncertainty unresolved, most FOMC members have signaled reluctance to cut rates in July. Unless labor market weakness becomes more evident, the bar for near-term easing remains high. That puts even more focus on this week’s jobs data as the primary swing factor for Fed policy expectations and Dollar direction.

On the European front, ECB officials have taken the unusual step of pinpointing Euro levels. Vice President Luis de Guindos said that EUR/USD levels above 1.20 could become problematic for inflation. Latvian Governor Kazaks flagged the combined impact of tariffs and a stronger exchange rate as a drag on exports. This shift signals a degree of discomfort with Euro’s 9% rise against Dollar since early April.

EUR/USD is currently trading around 1.18, still below the informal ECB red line. For now, the pair still has room to run, but traders may begin to tread more carefully as it approaches the 1.2 zone. Technically, that also coincides with a long term fibonacci level, 38.2% retracement of 1.6039 (2008 high) to 0.9534 (2022 low) at 1.2019. EUR/USD’s reaction to this level is crucial in determining whether it’s just in a medium term corrective pattern from 0.9534. Or it’s actually reversing the down trend that lasted more than a decade and a half.

In Asia, at the time of writing, Nikkei is down -0.33%. Hong Kong HSI is up 0.74%. China Shanghai SSE is up 0.05%. Singapore Strait Times is up 0.46%. Japan 10-year JGB yield is up 0.04 at 1.432. Overnight, DOW rose 0.91%. S&P 500 fell -0.11%. NASDAQ fell -0.82%. 10-year yield rose 0.021 to 4.251.

Looking ahead, Eurozone unemployment rate is the only feature in European session. Later in the day, US ADP employment will offer a prelude to tomorrow’s non-farm payrolls.

Aussie retail sales underwhelm with 0.2% mom growth in May

Australia’s retail sales rose just 0.2% mom in May, falling short of expectations for a 0.3% rise. The modest increase was largely due to a rebound in clothing purchases, while spending on food fell and household goods remained flat.

Robert Ewing, ABS head of business statistics, noted that aside from the lift in clothing, retail spending was generally “restrained”.

He also noted that this dataset is nearing its conclusion, with July’s release set to be the last edition of Retail Trade. Going forward, the Monthly Household Spending Indicator (MHSI), which leverages administrative data, will replace it as a more comprehensive tool for tracking household consumption trends.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6561; (P) 0.6576; (R1) 0.6597;

Intraday bias in AUD/USD stays on the upside for the moment. Current rise from 0.5913 should target 0.6713 fibonacci level. On the downside, below 0.6507 will turn intraday bias neutral again. But outlook will remain bullish as long as 0.6372 support holds, in case of retreat.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).

Source: ACTIONFOREX

Risk Warnings and Disclaimers

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Gerik

Economic

Expanded Fiscal Support for a Challenging Economic Landscape

On July 1, 2025, Vietnam’s Ministry of Finance officially implemented Circular No. 64/2025/TT-BTC, introducing a 50% reduction in 46 fee and charge categories, valid until December 31, 2026. This move is designed to ease operational pressures on businesses and citizens during a period marked by post-pandemic recovery, global market instability, and rising input costs.

While this is the sixth fee-reduction initiative since 2020, it stands out for its extended timeline and broader scope. By lasting 18 months and covering a wider range of sectors, the government demonstrates a commitment to maintaining economic momentum through proactive and inclusive fiscal tools.

Wide-Ranging Reductions Cover Core and Peripheral Sectors

The reductions apply across diverse fields such as business registration, banking, construction, public health, passport issuance, import-export certifications, fire safety inspections, and securities. For example, the fee for issuing licenses to establish and operate banks has been halved, in alignment with Circular No. 150/2016. Likewise, fees for business registration and investment project appraisal in construction are reduced by 50%.

For export-import businesses, the reduction in the Certificate of Origin (C/O) issuance fee is particularly beneficial. This cost reduction can improve competitiveness in international trade, especially for firms managing high volumes of cross-border transactions.

Estimated Financial Relief Exceeds VND 3 Trillion

While earlier reductions totaled around VND 700 billion, the extended scope and duration of this policy raise the anticipated financial support to over VND 3 trillion. This calculation considers not only large-scale enterprises but also micro, small, and individual business households, which represent a substantial portion of Vietnam's economic ecosystem.

Smaller but essential fee reductions were also included, such as those for importing non-commercial publications, industrial design and trademark registration, barcode usage, inland waterway inspections, and certifications in specialized sectors like fire safety or construction. These categories may seem minor but are operationally significant for niche industries and small-scale operators.

Foreign-Invested Enterprises Also Recognize the Benefits

Foreign investors have positively received the fee cuts, viewing them as signs of a stable and cost-efficient business environment. While the policy is not designed exclusively for FDI, its broad application indirectly contributes to improving the investment climate. Lower administrative fees may not directly cause an increase in foreign investment, but they do help reduce barriers to project expansion and new market entry, fostering an atmosphere of economic openness.

The timing of this initiative coincides with lingering global uncertainties, from supply chain disruptions to geopolitical tensions. While the fee cuts cannot directly shield Vietnam from external shocks, they offer businesses greater flexibility in cost management, encouraging reinvestment rather than contraction.

It is more accurate to describe this as a correlation rather than a strict cause-effect scenario—fee reductions do not instantly boost GDP but help create favorable conditions for capital flow, production continuity, and employment retention. By doing so, they reinforce the domestic economy’s resilience against international turbulence.

Fiscal Flexibility as a Strategic Anchor

The government’s decision to extend the policy through the end of 2026 reflects a broader strategy of using flexible fiscal tools to maintain growth. This is not merely a short-term stimulus but part of a medium-term recovery framework, where lowered business costs serve as indirect support for investment and productivity.

In contrast to more rigid monetary interventions, fee and charge adjustments offer quicker, more targeted relief with fewer systemic risks. Vietnam’s approach in this case mirrors international best practices, where fiscal levers are pulled in tandem with structural reforms to achieve a stable, pro-business environment.

Sustained Fee Reductions Reflect Strategic Foresight

Circular No. 64/2025 represents more than just a regulatory adjustment—it encapsulates a proactive and inclusive fiscal philosophy. By focusing on both macro-level stability and micro-level access, this policy ensures that a wide range of businesses, from large exporters to small-scale practitioners, can share in the relief.

Although fee reductions alone may not transform the economy, their impact on business confidence, transaction costs, and investor sentiment is tangible. The 18-month implementation window signals the government's intent to maintain stability, encourage reinvestment, and foster economic resilience during a period of global unpredictability.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Glendon

Economic

Commodity

Gold prices held steady in Asian trade on Wednesday after sharp gains in the past two sessions, supported by U.S. fiscal deficit concerns as the Senate passed President Donald Trump’s tax-and-spending megabill.

Bullion was also supported by uncertainty over U.S. trade deals ahead of Trump’s July 9 tariff deadline.

Spot Gold was largely unchanged at $3,337.25 an ounce, while Gold Futures for August edged 0.1% lower to $3,347.40/oz by 01:52 ET (05:52 GMT).

Gold has risen more than 2% this week so far, erasing losses from last week when Israel-Iran ceasefire reduced its safe-haven appeal.

Trump’s tax-cut bill clears Senate, sparks national debt concerns

Senate Republicans narrowly passed Trump’s sweeping tax-cut and spending bill on Tuesday.

The bill—aimed at cutting taxes, curbing social programs, and increasing military and immigration enforcement funding—is projected to add $3.3 trillion to the national debt.

It will now move to the House of Representatives for potential final approval, with Trump aiming to sign it into law by the July 4 Independence Day holiday.

Meanwhile, Federal Reserve Chair Jerome Powell repeated on Tuesday that the central bank will wait and learn about tariff impacts before cutting rates, defying Trump’s calls for swift, deep cuts.

Investors parsed Powell’s recent comments as slightly dovish as he did not rule out the chances of a rate cut next month.

Markets now await Thursday’s nonfarm payrolls report to gauge the chances of a July rate cut, while a reduction in September is largely priced in.

Trump’s July 9 tariff deadline looms

Expectations of lower interest rates and U.S. fiscal deficit concerns supported gold prices, while uncertainty over U.S. trade deals ahead of the looming July 9 deadline further aided sentiment.

Trump said he had no plans to extend the deadline and would instead notify countries of the tariff rates they will face through formal letters.

He said India may ease curbs on U.S. firms, opening the door to a deal, but added that he was doubtful about a deal with Japan.

Metal markets subdued, copper rises with dollar near 3-½ yr low

The US Dollar Index remained subdued in Asian trading hours, wallowing near its lowest level since February 2022.

Still, metal markets were largely subdued as investors sought clarity on trade deals and sectoral tariffs.

Silver Futures were largely muted at $36.05 per ounce, while Platinum Futures edged up 0.2% to $1,369.05.

Meanwhile, benchmark Copper Futures on the London Metal Exchange rose 0.4% $9,968.65 a ton, while U.S. Copper Futures jumped 1.6% to $5.1165 a pound.

Source: Investing

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Gerik

Russia-Ukraine Conflict

Political

Resuming Dialogue After Nearly Three Years

This phone call marks a significant thaw after nearly three years of frozen diplomatic ties, especially as France had been one of Ukraine’s strongest supporters within Europe. According to the Kiel Institute, Paris has committed over €3.7 billion in military aid since the conflict escalated in early 2022. However, Macron has recently adopted a more restrained tone, acknowledging the limits of France’s capacity to support Ukraine and suggesting that Europe must now consider resuming dialogue with Russia as part of any potential peace agreement.

This development is more than symbolic — it may open the door to renewed direct diplomacy between Moscow and a key EU and NATO power.

Moscow's Message: Blaming the West and Defining Terms

According to the Kremlin, Putin blamed Western nations for the Ukraine war, arguing that they ignored Russia’s security concerns for years and used Ukraine as a staging ground against Moscow. He reiterated Russia’s position that any resolution must be “comprehensive and long-lasting,” based on the “new territorial realities” — a phrase referencing the areas Russia has annexed from Ukraine.

While the tone was assertive, the fact that Putin is now engaging directly with Macron suggests that Moscow may be looking for leverage or political openings as Western sanctions and economic pressure continue to mount.

Macron’s Shift: From Confrontation to Strategic Reassessment

Macron, once a vocal advocate for strong support to Ukraine, has softened his stance in recent months. Acknowledging that France can no longer endlessly provide weapons, he recently urged European NATO members to think seriously about restarting dialogue with Moscow. This shift may reflect broader fatigue in Europe over prolonged war costs and a desire to reposition France as a potential broker in future peace efforts.

While this doesn’t mean a policy reversal, it points to a more pragmatic French strategy — preparing for the “day after” the war ends.

Middle East Concerns and Nuclear Nonproliferation: A Shared Interest

Beyond Ukraine, both leaders discussed the recent escalation between Israel and Iran. They agreed that diplomacy is the only viable path and emphasized the need to uphold global nuclear nonproliferation norms. They highlighted Iran’s legitimate right to pursue peaceful nuclear energy under the Non-Proliferation Treaty (NPT), underlining a rare area of shared concern between Russia and France in an increasingly fragmented global order.

This shared stance suggests that while Europe and Russia remain adversaries on Ukraine, they could still cooperate on multilateral issues like arms control and regional stability.

Could France Be Russia’s Way Back to the European Table?

Though no major breakthroughs were announced, the Putin–Macron call may indicate a subtle pivot in diplomatic postures. Russia may be testing the waters for reengagement, while France — strained by war fatigue and financial constraints — appears to be recalibrating its role from combatant ally to potential mediator.

If this trend continues, Europe could be entering a new phase of geopolitical recalibration. Not out of goodwill — but out of necessity, and long-term strategic calculation.

Source: France24

Risk Warnings and Disclaimers

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Blue River

Forex

Technical Analysis

The Loonie is having trouble extending its downswings near a key support zone!

Think it means CAD/JPY is ready to extend a longer-term uptrend?

Let’s take a closer look at the 4-hour time frame!

CAD/JPY: 4-hour

CAD/JPY 4-hour Forex Chart

Japanese yen traders found some support from slightly better-than-expected manufacturing surveys and comments from BOJ Governor Ueda at the ECB Forum, where he noted that underlying inflation remains below the central bank’s 2% target. Still, the yen gave back some of its weekly gains on Tuesday as geopolitical tensions and trade war concerns began to ease.

Over in Canada, a modest rebound in crude oil prices and signs of progress on a potential U.S.-Canada trade deal helped limit the Loonie’s losses, even though it remains one of the less favored major currencies when risk appetite returns.

Remember that directional biases and volatility conditions in market price are typically driven by fundamentals. If you haven’t yet done your homework on the Canadian dollar and the Japanese yen, then it’s time to check out the economic calendar and stay updated on daily fundamental news!

CAD/JPY has been slipping since hitting resistance at 107.00 last week, and is now trading near the 105.00 psychological level.

As you can see, this area lines up with the 100 SMA on the 4-hour chart, the S1(104.67) Pivot Point, and the ascending channel support that has held since May.

If the pair holds above 105.00 and prints bullish candlesticks, it could resume its longer-term uptrend. A move toward the 106.00 Pivot Point or even a retest of the 107.00 highs would be on the table.

But if downside momentum picks up and CAD/JPY breaks below the channel support, the uptrend could be in trouble. In that case, watch for a possible drop toward the 104.00 handle or the S2 Pivot Point near 103.69.

Whichever bias you end up trading, don’t forget to practice proper risk management and stay aware of top-tier catalysts that could influence overall market sentiment.

Source: BabyPips

Risk Warnings and Disclaimers

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Gerik

Economic

Cryptocurrency

From Skepticism to Strategy: China’s Pivot on Stablecoins

Despite its historic ban on crypto trading and mining, China is now showing growing interest in stablecoins—privately issued digital tokens pegged to traditional currencies. Triggered by recent remarks from People’s Bank of China (PBOC) Governor Pan Gongsheng and former central bank chief Zhou Xiaochuan, the conversation has shifted from rejection to exploration. Their comments during the Lujiazui Forum highlighted stablecoins’ potential to reshape global finance and reduce reliance on politicized traditional systems like SWIFT.

Morgan Stanley supports the idea of using Hong Kong’s financial system to test offshore yuan-backed stablecoins. This move would allow China to experiment with global digital finance innovations while avoiding violations of capital control laws. The push, however, is also reactive: just hours before the Shanghai conference, the U.S. Senate passed a bill regulating stablecoins, giving President Trump another legislative win and reinforcing the dollar’s digital dominance.

Trump’s Digital Dollar Push Raises Stakes for China

The United States is positioning stablecoins as a strategic extension of the dollar. Treasury Secretary Scott Bessent publicly endorsed stablecoins as a tool to strengthen—not weaken—dollar dominance, claiming they offer more trust than Europe’s or China’s central bank digital currencies (CBDCs). This stance aligns with President Trump’s broader digital asset agenda and aligns regulatory policy with financial innovation.

As stablecoins grow—projected to reach $3.7 trillion by 2030—most remain dollar-pegged and backed by U.S. assets, consolidating America's first-mover advantage. Economists like JD.com’s Shen Jianguang now warn that if China fails to develop competitive yuan-linked stablecoins, it risks ceding leadership in the next era of global finance.

Hong Kong as a Launchpad for Digital Yuan

Hong Kong’s new regulatory framework for fiat-referenced stablecoins offers a convenient backdoor for Chinese firms. JD.com and Ant Group are among the first expected to apply for stablecoin licenses, aiming to slash cross-border payment costs by up to 90% and reduce settlement times to under 10 seconds. Zhejiang China Commodities City Group, which manages the world’s largest wholesale goods market, has also declared interest in entering the stablecoin space.

This aligns with broader efforts to promote the yuan in trade settlement. In February 2025, over 30% of China’s goods trade was settled in yuan—a decade high—yet global usage remains limited. The failure of China’s official digital currency, the e-CNY, to gain traction, and the uncertainty surrounding the mBridge cross-border CBDC project after BIS pulled out, adds urgency to finding alternative digital channels.

Dual-Track Strategy and Global Perception Challenge

Chinese economists suggest a dual-track strategy: expanding traditional channels like the CIPS system and currency swaps, while using offshore yuan stablecoins as a flexible and politically safer alternative. Yet, barriers remain. As Cornell professor Eswar Prasad notes, offshore yuan stablecoins will struggle unless Beijing unifies its onshore and offshore exchange regimes.

The rise of stablecoins could also backfire domestically, potentially forcing China to accelerate reforms in capital mobility and exchange rate flexibility—changes Beijing has long resisted. Still, pressure from a fast-evolving global digital economy may turn stablecoins into a catalyst for long-overdue liberalization.

The global currency race is no longer just about traditional fundamentals but also about technological adaptability and geopolitical foresight. As the U.S. aggressively backs stablecoins to extend the dollar’s reach, China faces a make-or-break moment. Failing to embrace yuan-backed stablecoins could mean strategic retreat in the financial arena. Yet, doing so may require the country to confront deep-rooted structural challenges, potentially setting the stage for a transformative shift in how China engages with the world economy.