UBS today issued a forecast for the exchange rate, expecting it to reach 7.5 by the first half of 2025. This forecast comes amid ongoing trade tensions between the United States and China, with responses possible policy from Beijing including tariffs on targeted US goods and restrictions. on the export of essential commodities.
According to UBS, while these measures may be symbolic acts of defiance, they are not expected to significantly change the fundamental dynamics of the relationship between the US and China. Instead, a moderate devaluation of the Chinese Yuan (CNY) is seen as a more feasible approach to mitigate the economic impact of US tariffs. UBS believes that this gradual climb in the USD/CNY exchange rate will help cushion the Chinese economy against trade pressures.
The financial institution also noted that a significant depreciation of the yuan is unthinkable due to the risks of causing damaging capital outflows and competitive responses from China's trading partners. Such a move could destabilize China's financial system and is therefore considered unlikely.
On the other hand, UBS suggests that Beijing could extend concessions to ease tensions, such as increased purchases of agricultural products, liquefied natural gas (LNG), and services from the US. In addition, cooperation on issues of mutual concern such as combating drug trafficking could be part of China's strategy to manage the complex trade relationship with the US.
UBS's forecast of the USD/CNY reaching 7.5 by the end of 2025 reflects a cautious approach from China in dealing with trade disputes, balancing between retaliatory measures and cooperative moves to stabilize the economy and maintain international relations.
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