Fed rate cuts and easing trade tensions lift sentiment
China’s currency is increasingly expected to strengthen beyond the symbolic 7.0-per-dollar level next year, supported by US Federal Reserve rate cuts and improving expectations around China-US trade relations. Some market participants are even forecasting a move toward 6.8 per dollar, reflecting growing confidence in the yuan’s outlook.
Optimism has been reinforced by signs of a softer US dollar and Beijing’s policy efforts to stabilise economic growth. Analysts say these factors are reducing depreciation pressure on the yuan and encouraging capital inflows.
Market signals point to renewed momentum
The offshore yuan was trading near 7.05 per dollar early Monday, while the People’s Bank of China set a relatively firm daily fixing at 7.0656. This marks one of the strongest fixings seen in recent months and signals official comfort with a steadier currency.
Bank of America expects the yuan to strengthen to around 6.8 per dollar in 2026, citing policy stimulus, stable fixings and improving capital flows. Huatai Securities has issued a similar forecast, projecting a move to roughly 6.82 by the end of next year.
Policy stance and external factors align
Guan Tao, a former senior official at China’s foreign exchange regulator, said the easing cycle at the Fed and relatively calm bilateral trade relations are key drivers. He also noted that confidence in the US dollar has weakened due to policy uncertainty in Washington.
At China’s central economic work conference last week, leaders reaffirmed their commitment to keeping the yuan basically stable at a reasonable and balanced level, a message that has reassured currency markets.
Risks remain despite positive trend
While expectations are improving, analysts caution that a sustained break below 7.0 is not guaranteed. Slowing social financing growth and weak household borrowing could limit upside momentum, even as corporate financing remains solid.
China’s aggregate financing expanded 8.5 percent year on year in November, driven mainly by corporate borrowing, while household financing recorded net outflows. Analysts expect credit growth to moderate further in early 2026 due to a high base and more measured fiscal support.