UBS has forecasted that the USD/CNY exchange rate will climb to 7.5 by the end of the first half of 2025, citing persistent trade tensions between the United States and China as a driving factor. These tensions are expected to prompt Beijing to consider measures such as imposing tariffs on select U.S. goods and restricting the export of critical materials.

However, UBS analysts believe these actions would primarily serve as symbolic gestures rather than significantly altering the trajectory of U.S.-China relations. Instead, a moderate depreciation of the Chinese Yuan (CNY) is viewed as a more pragmatic response to counterbalance the economic strain imposed by U.S. tariffs. The gradual adjustment in the exchange rate is expected to provide a buffer for China’s economy while minimizing the risk of severe disruptions.

UBS emphasized that a sharp depreciation of the yuan is unlikely, as it could trigger undesirable capital outflows and provoke competitive devaluation responses from China’s trading partners. Such outcomes could destabilize the nation’s financial system, making a cautious approach more feasible.

The report also suggests that Beijing might adopt conciliatory measures to ease trade tensions. These could include increased imports of U.S. agricultural products, liquefied natural gas (LNG), and services, as well as collaborative efforts on mutual concerns, such as addressing drug trafficking issues.

By projecting a USD/CNY exchange rate of 7.5 by mid-2025, UBS indicates that China is likely to pursue a balanced strategy, combining limited retaliatory actions with cooperative initiatives. This approach aims to maintain economic stability while managing the complexities of its trade relationship with the United States.