Yuan Exchange Rate Predicted a Sharp Decline Against the US Dollar

According to Business Insider, analysts from the French financial conglomerate Societe Generale predict that the yuan may weaken to a 16-year low against the dollar by the end of 2023.

Analysts note that the yuan’s exchange rate declined by around 8% against the dollar in 2022 and has fallen by approximately 4% since the beginning of this year, reaching around 7.17 yuan. This translates to a cumulative depreciation of the Chinese currency of over 15% in recent years.

Market experts attribute the weakening of the Chinese currency to a decline in investor confidence in China’s economy. The country has been facing various challenges lately, including the debt crisis in the construction industry, slowing economic growth, high youth unemployment rates, and increasing government debt.

Analysts believe that the real estate sector has become a major drag on the Chinese economy. Coupled with the depreciation of the national currency, these economic issues are likely to worsen. This means that imports will become more expensive, while the trade surplus will sharply decline.

On July 20, Reuters reported, citing two sources familiar with the situation, that China’s major state-owned banks started selling US dollars to buy yuan in the offshore spot market (with immediate delivery to the buyer) at the beginning of Asian trading.