The yuan is predicted to reach new lows due to the increasing threat of U.S. tariffs, according to investment banks' forecasts.

• According to CNBC's calculation of forecasts from 13 institutions, major investment banks and research firms predict that the offshore yuan will weaken to an average of 7.51 per dollar by the end of 2025.
• According to LSEG data dating back to 2004, the currency reached its weakest level on record.
• The Chinese government must balance safeguarding the yuan's value with revitalizing the economy.

The yuan is expected to reach record lows due to U.S. president-elect Donald Trump's tariff threats, as global investment banks predict a weakening of the Chinese currency.

According to CNBC's calculation of forecasts from 13 institutions, major investment banks and research firms predict that the offshore yuan will weaken to an average of 7.51 per dollar by the end of 2025.

According to LSEG data dating back to 2004, the currency reached its weakest level on record.

Trump announced on Monday that he would impose a 10% tariff on all Chinese goods entering the U.S., as per a post on his social media platform Truth Social. During his election campaign, Trump had promised 60% or higher tariffs on Chinese goods.

According to Jonas Goltermann, deputy chief markets economist at Capital Economics, if U.S. tariffs are implemented, the dollar will appreciate, and economies with close trade ties to the U.S. will experience the largest currency adjustments.

To fully factor in 60% tariffs on all Chinese goods, the yuan would need to move to a level of 8.42 against the dollar, according to Mitul Kotecha, Barclays' head of FX & EM macro strategy of Asia.

Since the U.S. presidential election on Nov. 5, the offshore yuan has lost more than 2%, and its last trade on Thursday was at 7.2514.

In 2018, during the initial round of U.S. tariffs on Chinese goods under Trump's first term as president, the yuan depreciated by about 5%, and weakened another 1.5% the following year when trade tensions intensified, according to Reuters.

Onshore, China tightly controls the yuan's value through setting a daily price and allowing it to trade within a 2% range. Offshore trading, however, is more market-driven.

The uncertainty is greater now than during Trump's first term due to the larger tariff threat and greater trade imbalance between China and the U.S., according to Ju Wang, head of Greater China FX & rates strategy at BNP Paribas.

"Wang stated that any inconsistency in the new US administration's policy statements would increase uncertainty, and he anticipates the PBOC to implement "counter-cyclical measures to prevent its currency from exceeding the upper limit.""

PBOC conundrum

The Chinese government must balance protecting the yuan from depreciation while attempting to revive the economy. If the yuan experiences a significant drop in value, it could lead to increased capital outflows and financial market instability, according to economists.

"Cedric Chehab, chief economist at BMI, stated that the CNY is approaching the 7.3 per USD level that authorities have been attempting to maintain. If this level is breached, it would increase volatility in Chinese financial markets, which the PBOC would want to prevent."

Chehab stated that the central bank may not increase interest rates to stop the yuan's depreciation because it would negatively affect the growth of an already struggling economy.

This year, the PBOC has maintained the value of the onshore yuan by setting the daily reference rate at 7.20 on the dollar.

The central bank maintained several key policy rates this month in an effort to stabilize the currency.

A central bank official stated that the exchange rate will remain "basically stable at an adaptive and balanced level," which will prevent some depreciation expectations and maintain broader Asian FX stability. Wei Liang Chang, global FX and credit strategist at DBS Bank, is optimistic that "a recovery is on the cards when U.S. rates soften further."

After Trump announced the nomination of Scott Bessent as the next U.S. Treasury secretary, the U.S. dollar index has lost some of its recent gains, falling from a two-year high of 108.09 last Friday.

Bessent, a hedge fund manager, has supported Trump's tariffs but has advocated a "layered in" approach. This approach, according to Chang, should help contain trade risks, create room for negotiations, and ultimately curb excessive RMB outflows.