UBS Offers Thoughts on China's Yuan Outlook

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The People's Bank of China (PBoC) had given some hints that it intended to reduce the reserve requirements placed on foreign exchange (FX) deposits in order to moderate the rate of currency depreciation. In a note to its customers, the bank said that in addition to lowering its reserve requirements even more, re-introducing the counter-cyclical factor in its daily fixing, and increasing curbs on capital outflows, it had other tools at its disposal to rein in the currency's decline.

UBS forecasted that the Chinese yuan will continue to lose value against the United States dollar (USD) over the next few months, potentially falling below 7 at some point but settling at roughly 6.9 by the end of the year.

The bank forecasted that China's growth momentum will get back up by that time, as well as an improvement in financial market confidence. According to projections made by UBS, China's economy will continue to improve in 2023, while the US dollar will see some weakness, which will result in a USDCNY exchange rate of 6.7 by the end of 2023.

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