Analysts expect China’s yuan to fall to 17-year lows due to Trump’s return and trade war threats.
China’s currency faces a long, hard path with a fresh trade war looming. Bets against the euro are rising as analysts predict its lowest level in 17 years by 2025.
Markets are frightened by Trump’s 60% taxes on Chinese products. New fissures in the yuan appear since the previous trade conflict.
Foreign corporations are taking their money out, Chinese bond yields are well behind US rates, and the economy is weak. Deflation risks make disaster likely.
The onshore yuan touched 7.248 on November 14, its lowest level in three months. Chinese yuan trade offshore was little better, lingering at 7.237.
The dollar-yuan exchange rate might stabilize around 7.5 if Trump implements his tariffs, according to BNP Paribas. Societe Generale anticipates that the rate will reach 7.4 in the second quarter of 2025, while UBS anticipates that it will range from 7.6 to 7.7 next year.
That is not even the most dire scenario. By 2025, Jefferies Financial Group wants daily yuan fixes at $8 per dollar.
Chinese products may benefit from a weakened yuan, particularly if Trump’s tariffs strike hard. But the hazards are huge. Too rapid currency devaluation might cause capital flight, reduce China’s foreign reserves, and heighten US tensions.
History doesn’t favor China. Chaos ensued after the PBOC devalued the yuan 1.9% overnight in 2015. Beijing lost foreign reserves, and Trump called Beijing a “currency manipulator”. If the PBOC does anything similar today, China’s debt problems and US relations may deteriorate.
The PBOC is employing all its tools to stem the yuan’s decline. The central bank put the yuan’s reference rate higher than anticipated for three days in mid-November, signaling its dissatisfaction with its slide. Meanwhile, state-owned banks dumped dollars onshore to stabilize the market.
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