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The Chinese yuan is expected to reach unprecedented lows amid escalating U.S. tariff threats, according to investment banks.
Chinese officials are grappling with a declining yuan as global investment banks predict that the currency will reach historic lows, driven by expectations that U.S. President-elect Donald Trump will act on his tariff threats.
Leading investment banks and research firms estimate that the offshore yuan will depreciate to an average of 7.51 per dollar by the end of 2025, based on CNBC’s analysis of forecasts from 13 different institutions. This anticipated level would represent the weakest point for the currency since records began in 2004, according to LSEG data.
On Monday, Trump announced his intention to impose an additional 10% tariff on all Chinese imports via a post on his social media platform, Truth Social. During his election campaign, he had already committed to tariffs of 60% or more on Chinese goods.
“U.S. tariffs would, other things equal, lead to an appreciation of the dollar … currencies of economies with close trade links to the U.S. would see the largest currency adjustments,” stated Jonas Goltermann, deputy chief markets economist at Capital Economics.
According to Mitul Kotecha, Barclays’ head of FX & EM macro strategy for Asia, the yuan would need to depreciate to 8.42 against the dollar to fully account for the impact of 60% tariffs on all Chinese goods.
Since the U.S. presidential election on November 5, the offshore yuan has fallen over 2%, with its last recorded trading value at 7.2514 on Thursday.
In the first round of U.S. tariffs on Chinese products during Trump’s initial term in 2018, the yuan depreciated by around 5%, followed by an additional decline of 1.5% in the subsequent year as trade tensions escalated.
China has maintained strict control over the yuan’s value domestically by establishing a daily reference price that allows for trading within a 2% band around that figure, while offshore trading is more influenced by market dynamics.
Ju Wang, the head of Greater China FX & rates strategy at BNP Paribas, said “the uncertainty is a lot higher this time” than during Trump’s first term in office, given the size of tariff threats and the magnitude of trade imbalance between China and the U.S.
He added that “any perceived lack of consistency in the new US administration’s policy statements would also add to the uncertainty,” predicting that the People’s Bank of China (PBOC) would likely implement “counter-cyclical measures to prevent its currency from overshooting.”
Challenges Facing the PBOC
Chinese authorities are confronted with a difficult decision: how to protect the yuan from excessive depreciation while simultaneously working to revive economic growth. Economists caution that depreciation could lead to increased capital outflows and disrupt financial markets.
“The CNY is already close to the 7.3 per USD level that authorities have been trying to defend,” noted Cedric Chehab, chief economist at BMI. He emphasised that a breach of this level would heighten volatility in Chinese financial markets, which the PBOC aims to avoid. However, he also pointed out that raising interest rates to curb the yuan’s decline could negatively impact an already struggling economy.
This year, the PBOC has supported the onshore yuan’s value by capping its daily reference rate at 7.20 against the dollar. Additionally, it has kept several key policy rates unchanged in an effort to stabilise the currency.