CNY will remain under pressure for the rest of this year. We will likely only see a rather moderate boost to growth from policy stimulus in the coming months. Slow growth also speaks in favor of a loose monetary policy. The wide, negative China-US yield spreads will therefore remain for longer.

We forecast USD/CNY to largely trade around 7.20 through Q3. We also expect the pair to fall back to around 7.00 later in Q4, though the upside risk is large (i.e. CNY could stay weaker for even longer).

In light of CNY's weakness, the PBoC will continue to defend the currency by tweaking the daily fixing and perhaps will roll out other measures if needed, to smooth out short-term volatility.

Beyond the near term, CNY may strengthen modestly against USD, supported by the expected softening of the Dollar as we anticipate the Fed to cut its key interest rate in 2024.

EUR/CNY will likely move upward in the coming months and into 2024. The currency pair should benefit from the ECB’s restrictive monetary policy for some time ahead.