06:19 AM EST, 01/08/2025 (MT Newswires) -- United States President-elect Donald Trump's press conference on Tuesday highlighted that China won't be the sole focus of the new administration's trade policies, with Denmark now in the firing line along with Canada and Mexico, noted Mitsubishi UFG.

However, investors got the sense that Trump isn't going to hold back in his early days and there has been no toning down of promises and commitments as the inauguration date approaches, wrote the bank in a note to clients.

China's renminbi (CNY) continues to grind weaker as investors position for a sharp escalation in tariffs very quickly after the inauguration on Jan. 20, stated MUFG. In line with that, Chinese authorities are increasing the resistance to further depreciation with the central bank (PBoC) fixing USD/CNY on Wednesday at a level higher than the Bloomberg daily estimate by the widest margin since April.

When there has been this extent of divergence in the past, it has coincided with USD/JPY topping out, pointed out the bank. This time will probably be different depending on the extent of the tariffs announced but investors should certainly not assume a sharp move given the authority's desire for orderly contained moves.

This was made clear at the end of last week following the latest quarterly monetary policy meeting when the PBoC emphasized continued foreign exchange stability as a key goal. State banks have also pared back offshore CNH liquidity with the overnight rate still elevated at 7.82% Wednesday, but down from 8.1% on Tuesday, providing support for CNH, added MUFG.

However, with onshore rates set to remain under downward pressure, the likelihood is that CNY will continue to gradually weaken toward the bank's target of 7.5000. How aggressive policies are to boost domestic demand will be important, according to the bank.

China Wednesday published details on increased subsidies on certain consumer products to help lift domestic demand. A 15% subsidy for smart device purchases will help boost demand while subsidies for an expanded list of household goods and the renewal of a trade-in subsidy for electric vehicles will help as well.

Nonetheless, action to help discourage China's high savings rate is what's really required over the medium term through increased social safety net benefits, noted MUFG.