Ella 
EUR/CNY could head higher in the coming months
The yuan will remain under pressure in the second half of this year. We are likely to see only a modest boost to growth from policy stimulus in the coming months. Slower economic growth also supports looser monetary policy. Therefore, the huge negative interest rate spread between China and the United States will exist for a long time.
We forecast that USD/CNY will basically trade around 7.20 in the third quarter. We also expect the pair to fall back to around 7.00 later in Q4, but with significant upside risks (i.e. CNY could remain weak for longer).
Given the yuan’s weakness, the People’s Bank of China will continue to protect the currency by adjusting its daily fixing and perhaps introducing other measures to smooth short-term volatility if necessary.
In the near term, the RMB may strengthen slightly against the US dollar, as we expect the US Federal Reserve to cut key interest rates in 2024 and the US dollar is expected to weaken.
EUR/CNY could turn up in the coming months and into 2024. In the period ahead, the pair will benefit from the ECB’s restrictive monetary policy.
