According to CNBC, Trump has not yet signed an executive order for a 50% tariff increase on China, despite his prior threats. Press Secretary Karoline Leavitt stated that Trump believes China is eager to strike a deal and that it was unwise for China to retaliate.
At midnight, the proposed tariffs are set to take effect, and the situation may become clearer as day breaks in Beijing. The value of the yuan has declined close to its all-time low, and changes in the on-shore yuan fix will be monitored before midnight to assess China’s position.
Tense Waiting Game
The early moves suggest a tense waiting game. While the order hasn’t officially been signed, the prospect alone has stirred nerves in the markets, and trading desks are already adjusting to account for potential swings. Leavitt’s comments made it clear the view is that Beijing has more to lose in this phase — the idea being that hesitation on tariffs gives the other side a chance to blink first. There’s no walk-back from the rhetoric, but deliberately holding off on the formal stamp of approval offers room for manoeuvre.
With tariffs possibly kicking in as clocks turn in China, attention shifts to the yuan’s overnight reference point. That fix, posted around 9:15 a.m. Beijing time, has become an unofficial messaging platform for policymakers to lean one way or another. If the yuan is set markedly weaker than expected, it could be interpreted by markets as a sign that policymakers in Beijing have no intention of backing down. On the other hand, anything steady or notable for its restraint might indicate openness to further talks, or at least that they are content to avoid escalation.
We’ve seen the yuan edge close to its historical floor against the dollar. From a trading perspective, those moves can be telling. A sustained level at or beyond the previous low may open the door to broader repositioning — especially as short-term hedges get recalibrated. The mechanics of the fix play an active role in setting the tone for next sessions, particularly given the hour in which it lands and the lag in response outside Asia.
Market Volatility
Typically, when currency pressure coincides with uncertain policy direction, implied volatility jumps in FX markets. Those who’ve positioned for range-bound movement may find fast re-pricing in options. There’s little sign that tariffs will be avoided entirely, which keeps hedging costs elevated. For structured products, this tends to distort return profiles if not properly adjusted for, especially near dated maturities.
Expect quiet pressure in rates markets too. The hint of delayed action, alongside potential broad currency stresses, feeds into tighter conditions — often on the short end first. We watch funding spreads for early changes, but yield curve shifts tied to cross-border policy conflict can reappear faster than expected. When the yuan sets weak and policy remains ambiguous, liquidity can move unevenly, and that’s usually when sharper moves unfold.
Given these cross conditions, price signals are harder to isolate. So we’ll need to rely more on timing — before fix, after fix, pre-market opens. Watching how order books behave in the futures market around these timestamps offers clues. Overnight liquidity tends to thin just before these key windows, but strong directional bets still sneak in. What’s said publicly versus revealed in price action doesn’t always line up, and that’s the gap we need to track in coming sessions.
