Analysis: How Will the Yuan Perform in 2025
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The yuan ended 2024 with fewer fluctuations, though it faced increasing pressure from the strengthening U.S. dollar. What factors should we watch for the currency’s performance in the coming year?
On Tuesday, the final trading day of 2024, the onshore yuan closed at 7.2988 against the U.S. dollar, weakening from around 7.09 at the beginning of the year. In the first half, the yuan gradually depreciated to 7.26 as the Federal Reserve delayed its interest rate cuts. Following the Fed’s rate cut in September, the yuan briefly rebounded to around 7.02, but weakened again in November, falling from 7.11 to 7.29, nearing the 7.3 threshold for the first time in nearly a year.
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- In 2024, the yuan weakened against the U.S. dollar, closing at 7.2988; its exchange rate volatility decreased from 9% to 4%.
- Key factors influencing the yuan include U.S. monetary policy, geopolitical risks, China's economic performance, and potential tariff threats from Trump's re-election.
- The U.S. dollar strengthened, reflected in the U.S. Dollar Index rising from 103.9 to 107.9, with China's yuan likely facing moderate depreciation pressures in 2025.
- Huaxi Securities
- Huaxi Securities highlighted that strong U.S. economic data and inflation pressures limit the Fed's room for further rate cuts. They expect China's "moderately loose" monetary policy to diverge from U.S. policy, prompting capital outflows and yuan depreciation. Additionally, they anticipate the U.S. dollar to remain strong, causing moderate yuan depreciation, though the yuan's stability against a basket of currencies is expected to persist.
- Haitong Securities
- Haitong Securities, in their research report, stated that the yuan's exchange rate trends will largely depend on policy decisions. They suggest that if depreciation pressure increases, the central bank will work to maintain the yuan at a stable level using various foreign exchange management tools. These tools include counter-cyclical factors, offshore liquidity management, and foreign exchange reserve interventions. They expect the yuan's exchange rate to fluctuate around its current level, with external shocks needing close monitoring.
- Beginning of 2024：
- The onshore yuan was around 7.09 against the U.S. dollar.
- First half of 2024：
- The yuan gradually depreciated to 7.26 as the Federal Reserve delayed its interest rate cuts.
- September 2024：
- Following the Fed's rate cut, the yuan briefly rebounded to around 7.02.
- November 2024：
- The yuan weakened again, falling from 7.11 to 7.29, nearing the 7.3 threshold for the first time in nearly a year.
- In the past two months before the end of 2024：
- The yuan's exchange rate was notably influenced by the U.S. presidential election and the U.S. Dollar Index climbed from 103.9 to 107.9.
- On Tuesday, the final trading day of 2024：
- The onshore yuan closed at 7.2988 against the U.S. dollar.
- By Jan. 1, 2025：
- China revised the basket of currencies used to measure the performance of the yuan, adding Macao's pataca while reducing the weightings of the U.S. dollar, euro, and yen.
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