Chinese yuan to record low as US tariff threat grows!
Chinese authorities are grappling with a weakening yuan as global investment banks predict the currency will hit record lows on expectations that US President-elect Donald Trump will follow through on his tariff threats.
Major investment banks and research firms expect the offshore yuan to weaken to an average of 7.51 per dollar by the end of 2025, according to a CNBC calculation of forecasts from 13 institutions. That would mark the currency's weakest level on record, according to LSEG data since 2004.
Trump said on Monday that he would impose a 10% additional tariff on all Chinese goods coming into the US, according to a post on his social media platform Truth Social. Trump had already promised tariffs of 60% or higher on Chinese goods during his election campaign.
The yuan would need to move to a level of 8.42 against the dollar to fully factor in the 60% tariffs on all Chinese goods, forecast Mitul Kotecha, Barclays' head of Asia FX & EM macro strategy.
The offshore yuan has lost over 2% since the US presidential election on November 5 and last traded at 7.2514 on Thursday. Uncertainty is much higher this time than for Trump's first term in office, given the size of the tariff threat, the size of the trade imbalance.
During the initial round of US tariffs on Chinese goods under Trump's first term as president in 2018, the yuan depreciated by about 5%, according to Reuters, and weakened by another 1.5% the following year as trade tensions intensified. .
China has kept a tight grip on the yuan's value on the ground by setting a daily price with the currency allowed to trade within a 2% band around that price. Offshore trading is more market driven.
Chinese authorities are facing a tough call to protect the yuan from falling too far as they try to get the economy back on track. Any drastic depreciation of the yuan could risk worsening capital outflows and sending shockwaves through financial markets, economists said.
But the challenge is that the central bank may not want to raise interest rates to stem the yuan's slide, as that would weigh on growth in an already faltering economy. The PBOC has supported the yuan's value on the ground by capping the daily reference rate at 7.20 to the dollar this year.
This month, the central bank also kept several key policy rates unchanged as it seeks to stabilize the currency. The exchange rate will be kept "basically stable at an adaptive and balanced level," a central bank official said in a statement last week.
The US dollar index pared its gains after Trump announced the nomination of Scott Bessent as the next US Treasury secretary, falling from a two-year high of 108.09 last Friday.
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