Major financial institutions, including MUFG Bank and ABN AMRO, are forecasting a period of gradual downside pressure on the USD/CNY exchange rate, driven by anticipated reductions in US tariffs on Chinese goods. This shift in trade policy is expected to significantly reshape global currency dynamics and trade flows through 2025.
MUFG Bank's analysis identifies tariff adjustments as the primary catalyst, with their research indicating that every 10% reduction in average bilateral tariffs historically correlates with a 1.2-1.8% appreciation of the yuan against the US dollar over subsequent quarters. The bank projects "gradual downside" pressure, expecting cumulative moves of 3-5% over a 12-18 month period, rather than abrupt shifts.
Concurrently, ABN AMRO's research supports this outlook, suggesting that a partial rollback of tariffs could add 0.3 to 0.5 percentage points to global trade growth in 2025. The Dutch bank highlights that sectors like consumer electronics, textiles, and industrial machinery would see the most immediate benefits from reduced trade barriers, potentially lowering costs for US importers and consumers while improving order volumes for Chinese manufacturers.
The currency dynamics are further influenced by central bank policies. The People's Bank of China maintains a managed floating system, emphasizing "two-way flexibility," while the Federal Reserve's monetary policy trajectory creates countervailing pressures. Market participants are closely monitoring daily fixing rates, which have shown increased alignment with spot market movements, reflecting China's ongoing financial market integration.
This forecast follows a complex history of US-China trade relations, marked by escalation from 2018-2019, partial stabilization with the 2020 Phase One Agreement, and strategic competition through 2023. Current negotiations are reportedly more comprehensive, addressing technical barriers, digital trade standards, and agricultural market access alongside traditional tariff measures.
