The latest manufacturing data from both the United States and China points to a renewed slowdown, with May PMI readings indicating contraction in both economies. This downturn comes in spite of reduced tariffs following an initial trade agreement reached in Switzerland earlier this month.
China Manufacturing PMI Hits 20-Month Low
China’s Caixin Manufacturing PMI fell to 48.3 in May 2025, signaling the first contraction in eight months and marking the lowest level since September 2022. The decline was primarily driven by a sharp drop in new export orders—reflecting the impact of renewed U.S. tariffs—as well as softer demand both at home and abroad. The data underscores persistent headwinds facing China’s industrial sector, despite recent efforts to stabilise trade relations and stimulate economic activity.
The detailed report also revealed a continued decline in manufacturing employment and purchasing volumes, reflecting weakening industrial momentum. On the cost front, input prices fell for the third consecutive month, largely due to softer energy and raw material prices. Output prices also declined, extending a deflationary trend for the sixth straight month.
Given that manufacturing contributes nearly 30% of China’s GDP, the sector’s slowdown may be an early warning sign of broader economic fragility.
U.S. Manufacturing PMI Contracts for Third Straight Month
The latest data from the Institute for Supply Management (ISM) shows that U.S. manufacturing activity declined for the third consecutive month in May, with the PMI falling to 48.5—down slightly from April’s 48.7 reading. The continued weakness adds to concerns over the health of the sector.
Although manufacturing accounts for only 10.2% of U.S. GDP, the sustained contraction is fuelling broader concerns about rising input costs and policy uncertainty. While the Trump administration continues to assert that the impact of tariffs is being borne by foreign exporters, feedback from manufacturers suggests the burden is falling heavily on U.S. businesses and consumers.
The ISM survey highlighted sharp increases in costs tied to import duties—particularly on Chinese goods and raw materials—further straining profitability and disrupting supply chains across multiple industries.
USDCNH Outlook: Which Currency Faces Greater Pressure?
China’s economy, still deeply dependent on manufacturing and exports, is confronting growing challenges as factory activity weakens. A continued decline in export performance could add further downside pressure on the Chinese Yuan (CNH), especially if global demand remains subdued and trade tensions linger.
On the other hand, the U.S. Dollar is not without its own vulnerabilities. Broader macroeconomic concerns—including rising fiscal and trade uncertainty—are casting doubt over the long-term trajectory of U.S. monetary policy. While the Federal Reserve has adopted a cautious tone, persistent inflation may force it to keep interest rates elevated for an extended period. Such a scenario could amplify fiscal imbalances and weigh on overall confidence in the Dollar.
As both economies navigate complex domestic and external pressures, the USDCNH pair remains a key barometer of investor sentiment toward global growth and policy divergence.
Technical Outlook for USDCNH
After reaching a 17-year high near 7.3700, USDCNH experienced a sharp reversal, signaling a significant shift in market sentiment and momentum exhaustion at elevated levels.
In the near term, USDCNH is trading below a key support zone between 7.2300 and 7.2000. A decisive break below the 7.2000 threshold could trigger further downside momentum, with the next support levels likely to come into focus.
This bearish outlook may be reinforced by broader U.S. Dollar weakness, particularly if fiscal and monetary policy uncertainty intensifies. Traders should closely watch the 7.2000 level—holding above it may offer temporary stability, while a clear break lower would signal a deeper bearish extension.