The Chinese yuan weakened to its lowest level against the US dollar in two weeks on Tuesday, pressured by a broad-based rally in the greenback.
The move reflects a shifting market dynamic where US monetary policy expectations are once again dominating currency flows, overshadowing recent geopolitical tensions that had previously supported the dollar as a safe haven.
US Treasury yields climbed sharply in the session, with the interest-rate-sensitive two-year yield touching a 16-month high.
This surge in short-end yields signals that investors are increasingly pricing in a more restrictive path for the Federal Reserve, reducing the likelihood of near-term rate cuts.
The resulting yield advantage for US assets is driving capital flows into the dollar, creating headwinds for emerging market currencies including the yuan.
This development marks a notable shift from Monday’s trading, when the yuan held steady as market attention was focused on de-escalating tensions in the Middle East.