Global Macro Service > Research Briefings > China

Policymakers likely to dampen CNY depreciation

The pronounced depreciation of the CNY in the second half of June has been a sharp break from the trend of the previous few months and has unnerved financial markets. We think it reflects market pressures amid gloomier sentiment on China’s growth and intensified trade tensions with the US. China’s policymakers do not want the yuan to weaken too much and, if the pressures persist, we expect them to take increasingly forceful steps to support the currency. While our baseline forecast sees the pressure on the CNY subsiding in H2 amid a softening USD and still solid domestic growth, continued pressure on China’s FX and equity markets amid further worsening of sentiment constitutes a key risk for markets in China and elsewhere.

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