UBS Predicts USD/CNY Will Reach 7.5 by Mid-2025

UBS has published a forecast for the USD/CNY exchange rate today, predicting that the rate will reach 7.5 by the end of the first half of 2025. This estimate comes in the context of ongoing trade tensions between the US and China. Potential policy responses from Beijing include the imposition of tariffs on targeted US goods and restrictions on the export of critical materials.

According to UBS, while these measures may serve as a symbolic challenge, they are not expected to significantly alter the underlying dynamics of US-China relations. Instead, a moderate depreciation of the Chinese Yuan (CNY) is viewed as a more feasible approach to mitigate the economic impact of US tariffs. UBS believes that this gradual increase in the USD/CNY exchange rate will help shield the Chinese economy from trade pressures.

The financial institution also pointed out that a sharp depreciation of the yuan is unlikely due to the associated risks of harmful capital outflows and competitive responses from China's trading partners. Such a move could destabilize China's financial system and therefore seems improbable.

On the other hand, UBS suggests that Beijing may offer concessions such as increasing purchases of agricultural products, liquefied natural gas (LNG), and services from the US to ease tensions. Additionally, cooperation on shared concerns such as combating drug trafficking could also be part of China's strategy to manage its complex trade relationship with the US.

UBS's forecast of the USD/CNY reaching 7.5 by the end of 2025 indicates that China is adopting a cautious approach to handle trade disputes, balancing retaliatory measures with collaborative gestures to maintain economic stability and international relations.