EBC Markets Briefing | Yuan firms in the wake of US credit blow

The dollar trimmed a four-week gain in early Asian trade on Monday as markets digested a fresh blow to US assets. April retail sales suggests pre-emptive buying to get ahead of tariff-related price hikes faded quickly.

Moody's Ratings cut the US' sovereign credit rating down one notch to Aa1 from Aaa, citing the growing burden of financing the federal government's budget deficit and the rising cost of rolling over existing debt.

All the major credit rating agencies are giving the world's largest economy their second-highest available rating. That means Treasury yields may need to rise further to draw investment.

The benchmark 10-year yield edged lower on Friday on disappointing consumer sentiment reading that showed heightened inflation fears. It hit the 16-year high of 5% in October 2023 and has fallen about 50 bps ever since.

US levies on Chinese products imposed this year will likely hold at 30% through late 2025, according to a Bloomberg survey. If the US and China reach a final trade agreement, the tariffs could come down to 20%.

They expect the yuan to hold near 7.2 per dollar by the end of this year. With speculation about easing, the currency may find an anchor as authorities are expected to prevent excess fluctuations for financial stability.

The yuan stays above the 200 SMA at 7.22 per dollar, and looks natural now. If the level does not hold, it could dip to 7.25 per dollar.

EBC Wealth Management Expertise Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Group Corporate News or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.