We forecast a stronger path for the yuan than previously expected, given our new outlook for a weaker dollar. Nevertheless, we forecast that USD/CNY will remain above the 7 mark to reflect our expectation that the yuan will remain weak in the coming quarters, notes Tommy Wu, FX Strategist at Commerzbank.
USD/CNY to fall to 7.05 by mid-2025
“The yuan strengthened against the dollar in August along with other Asian currencies as markets priced in Fed rate cut expectations and US Treasury yields fell across the curve. Negative yield spreads between China and the US narrowed and eased pressures on the yuan. USD/CNY largely hovered around 7.26-7.28 for most of July and fell below 7.15 in mid-August.”
“We have revised down our USD/CNY forecast to reflect a weaker dollar over the medium term than previously expected. This is because we now expect six Fed rate cuts over the next few quarters instead of three at the time of the last forecast, and the US structural growth advantage will be less pronounced in the near term.”
Still, we do not expect the yuan to appreciate significantly because China-US yield spreads will likely remain negative, even if they narrow or approach zero in the coming quarters. Overall, we expect USD/CNY to fall to 7.05 by mid-2025. As we expect the US growth advantage to return in the second half of 2025 after a period of weakness, and the Fed to stop cutting rates by then, the USD is likely to strengthen to push USD/CNY back up to 7.10.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
