Chinese yuan faces upward pressure amid EU trade deal and undervaluation claims

The Chinese yuan is experiencing upward pressure against major currencies, driven by both market dynamics and new trade agreements. Goldman Sachs analysts suggest the yuan may be undervalued by as much as 20% to 25%, predicting it could strengthen to 6.40 per dollar within a year as Beijing potentially allows for more appreciation to stabilize trade ties.

In Europe, the euro has hit multi-year lows against the offshore yuan, partly due to French debt tensions. This shift comes as the European Union and China reach a deal to address the bloc's growing trade deficit, which has exceeded €1 billion per day. The agreement establishes a quota on Chinese hybrid car exports to the EU, limiting imports to 350,000 vehicles annually starting in early December, with a 6% annual increase thereafter.

This regulatory move follows a massive surge in Chinese hybrid exports to the EU, which tripled to $7.5 billion in the first half of this year compared to $2.5 billion in the previous year. While the quota may impact Chinese manufacturers, the negotiated result is viewed as a way to avoid a full-scale trade war.