Chinese yuan stronger on Beijing summit reset
The Beijing meeting between President Xi and President Trump struck a more positive tone, although it delivered little in the way of concrete commitments.
Both leaders proposed a new, more stable framework to guide US-China relations. This framework focuses on four key pillars: cooperation, competition management, dispute control and long-term stability.
While President Trump pledged to build the strongest US-China relationship ever, China emphasised Taiwan as a core issue and stressed the importance of peace across the Strait.
Leaders described the trade discussions as balanced and constructive, but details remain limited.
The Chinese yuan gained for eight consecutive sessions ahead of the summit – the best winning streak since 2017. The yuan eased on Friday, however.
In FX markets, the Chinese yuan strengthened, pushing both AUD/CNH and EUR/CNH lower. AUD/CNH dropped to a one-month low, while EUR/CNH is nearing a ten-month low. The GBP/CNH fell to an 18-month lows. The CAD/CNH is nearing four-year lows
Meanwhile, the benchmark USD/CNH sits just above its recent three-year low of 6.7815. For USD/CNH to build upward momentum, the pair needs to break above the 21-day EMA at 6.8160 before testing the 50-day EMA at 6.8460.
EUR: Time and rates work against the euro
When rate differentials were at their narrowest in favour of the euro since 2022, back in March, the currency was unable to reap the benefits, as it was instead weighed down by deteriorating sentiment linked to the conflict in the Middle East. We have now entered a phase in which relative macro backdrops, and in turn policy outlooks, matter more as incoming data provide a clearer picture of economic trajectories shaped by ongoing geopolitical tensions. Unfortunately for the euro, this shift has coincided with a re-widening of rate differentials in favour of the dollar.
In conflict-driven environments, hawkish policy signals tend to gain traction only when supported by a solid macro backdrop, something the eurozone has so far struggled to deliver relative to the US. Markets also appear to have largely exhausted the upside in ECB rate hike expectations for this year, with around three hikes already priced. This leaves scope for further downside should those expectations unwind.
The common currency’s near-term support now hinges on a renewed market focus on the conflict following the summit, and on whether negotiations between the US and Iran remain stuck in paralysis. That said, time is an important factor. The longer the conflict persists, the more entrenched the Fed’s hawkish bias and relative US macro outperformance are likely to become, and the harder it may be for markets to revert to the bearish dollar regime that dominated much of 2025 and early 2026. Against this backdrop, the balance of risks appears to be shifting increasingly bearish for EUR/USD, with 1.16 emerging as a clear downside target. For now, however, the pair appears to have consolidated near the bottom of the 1.16 handle after declining for four consecutive sessions, as it assesses developments on the geopolitical front.
This week features the release of April’s eurozone CPI on Wednesday and May’s S&P PMIs on Thursday, alongside several central bank speakers, including President Lagarde. With near 90% of a hike priced in for next month’s policy meeting, the focus will be on whether incoming data and communication can reinforce – or challenge – existing tightening expectations.
GBP: Pound awaits clearer political signals
Sterling faced deep bearish pressure last week amid heightened political uncertainty, as the risk of a leadership challenge to Keir Starmer quickly began to feel more tangible. Events moved rapidly. Sterling initially held up relatively well, reflecting the fact that the election outcome had largely been priced in by markets, but it soon came under pressure as subsequent developments made the prospect of a leadership challenge increasingly credible.
At first, there appeared to be no clear alternatives, with former Deputy Prime Minister Angela Rayner still facing a tax probe and Andy Burnham not sitting in Parliament. Within the same week, however, HMRC cleared Rayner, while an MP from Burnham’s constituency resigned, paving the way for his return to Parliament. At the same time, Health Secretary Wes Streeting, a key rival to Starmer, resigned, a move widely interpreted as a preparatory step toward launching a challenge himself. Suddenly, the threat of a leadership contest felt far more real, and both the gilt market and sterling reflected that shift. That higher threshold for further downside was ultimately met.
Friday proved calmer for the pound, as markets digested the rapid developments and refrained from pricing in more severe political upheaval until clearer momentum toward a challenge emerges. GBP/EUR found support near 1.1450 – a key support level tested several times since the start of the year but ultimately holding.
Away from politics, this week brings the release of the UK’s March labour market report on Tuesday and April inflation data on Wednesday. We doubt sterling will react materially to either release, however, as markets remain preoccupied with political risks and broader geopolitical backdrop. That said, with close to three rate hikes already priced in by year-end, any downside surprise may trigger a more pronounced repricing lower in the expected policy path, weighing more meaningfully on the currency.
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Calendar: May 18-22
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
