SHANGHAI (Reuters) – Global investment banks are rushing to trim their forecasts for the Chinese yuan amid the looming threat of rising trade tensions following Donald Trump’s win in the U.S. presidential election.
As part of his pitch to boost American manufacturing during the election campaign, Trump said he will impose tariffs of 60% or more on goods from China.
Trump’s proposed tariff and tax policies are seen as inflationary and therefore likely to keep U.S. interest rates high and buoy the dollar, undermining currencies of trading partners.
An average of six investment banks’ forecast projects the yuan weakening about 1.5% to 7.3 per dollar through the end of 2025. In comparison, the yuan depreciated by 5% in the initial round of U.S. tariffs on Chinese goods in 2018 and another 1.5% a year later when trade tensions escalated during Trump’s first presidency.
Here is a summary of some forecasts for the Chinese currency:
INVESTMENT HOUSE end-20 Q1-20 Q2-20 Q3-20 end-
24 25 25 25 2025
UBS 7.3 7.6
J.P. Morgan 7.3 7.4 7.4 7.5 7.5
Societe Generale 7.4 7.3 7.2 7.1
ING 7.15
Commerzbank 7.15 7.15 7.15 7.15 7.15
OCBC Bank 7.2 7.15 7.18 7.2 7.22
Major investment houses had forecast the yuan to trade at around 7.1 per dollar at the end of this year, according to Reuters’ calculation based on forecasts from 12 financial institutions in late 2023.
KEY QUOTES:
** ING
“Overall, we expect the onshore yuan (CNY) outlook to be a little weaker with a Trump win in the books, and risks to our forecasts are now tilted toward a weaker CNY.
“We may consider extending the upper bound of our 2025 fluctuation band a little higher if we get signals of stronger action against China, though we expect the People’s Bank of China (PBOC) will once again ramp up intervention to prevent excessive depreciation; odds of a move past the 2023 highs of 7.34 are still relatively small unless policymakers abandon the currency stability objective.”
** UBS
“In the new baseline, we assume that the new Trump administration will impose additional tariffs on most imports from China in a staged manner starting in H2 2025, though uncertainties remain high on the scale and timing of tariffs and other US policies.”
** BNP PARIBAS
“Trump’s potential tariff policy is what the market is focusing on the most right now. If the 60% tariff were delivered, then we expect the upside risk for USD/RMB could go to 7.5–7.7. The biggest downside uncertainty revolving around Trump’s presidency is whether there would be a new Plaza Accord. This concern arises as he said he prefers a weaker dollar, which is highly unachievable with his current policy proposals, in our view.”
** SOCIETE GENERALE
“The CNY will hurt from Trump 2.0. Faster than previous Trump 1.0 but smaller than that in Trump 1.0.
“China’s more holistic economic support measures will also mitigate tariff impact to some extent too.”
** CITI
“Higher likelihood of tariff imposition means that emerging market (EM) Asia FX could weaken versus the USD. Imposition of a 10-15% tariff would result in 1.5-2.0% offshore yuan (CNH) weakness from current levels of 7.15-7.20, we estimate.”
(Reporting by Shanghai Newsroom; Editing by Janane Venkatraman)
