UBS today issued a forecast for the exchange rate, expecting it to reach a value of 7.5 in the first half of 2025. This forecast comes amid ongoing trade tensions between the United States and China, with possible policy responses from Beijing including tariffs on targeted US goods and restrictions. on the export of critical materials.
According to UBS, while these measures may serve as symbolic acts of resistance, they are not expected to significantly change the fundamental dynamics of the US-China relationship. Instead, a moderate depreciation of the Chinese yuan (CNY) is seen as a more feasible approach to softening the economic impact of US tariffs. UBS believes this gradual increase in the USD/CNY exchange rate will help protect the Chinese economy from trade pressures.
The financial institution also noted that a sharp depreciation of the yuan is unlikely due to the risks of damaging capital outflows and competitive responses from China’s trading partners. Such a move could destabilize the Chinese financial system and is therefore considered unlikely.
On the other hand, UBS suggests that Beijing could make concessions to ease tensions, such as increasing purchases of agricultural products, liquefied natural gas (LNG) and services from the US. Moreover, cooperation on issues of mutual interest, such as combating drug trafficking, could also be part of China’s strategy to deal with its complex trade relationship with the US.
UBS’s forecast that the USD/CNY will reach 7.5 by the end of 2025 signals a cautious approach by China to addressing trade disputes, striking a balance between retaliatory measures and cooperative gestures to ensure economic stability and international maintain relations.
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