Recent developments indicate a complex landscape for the Chinese Yuan (CNY) as state-owned banks in China actively purchase U.S. dollars to mitigate the yuan's recent appreciation, which has reached a 14-month high. This action aims to limit dollar liquidity and raise holding costs for long positions in the yuan, as reported by analysts on December 4, 2025.
Global investment firms are optimistic about the yuan's potential strength in the coming years, forecasting it may surpass the 7-yuan-per-dollar mark by 2026. This expectation is fueled by narrowing yield differentials between China and the United States, along with improving trade relations. Furthermore, the People's Bank of China (PBOC) is prioritizing efforts to internationalize the yuan, stability in daily reference rates, and reduced volatility, positioning it as a reliable store of value amidst ongoing domestic economic challenges.
China's monetary policy is focusing on stimulating domestic demand, with experts suggesting potential interest rate cuts and reduced reserve requirement ratios in 2025 to prevent sharp depreciation of the yuan. The latest economic metrics showed unexpected growth in China's economy, reported at 5.2% in the three months ending June, which has been bolstered by significant government stimulus efforts.
Examining current exchange rates, the CNY to USD is nearing 90-day highs at 0.1416, slightly above its three-month average of 0.1406, indicating a stable trading range. The CNY to EUR stands at 0.1217, also slightly more than its average, while the CNY to GBP is trading at 0.1064, both within stable ranges. Notably, the CNY to JPY has reached 22.21, marking a significant 3.6% increase from its three-month average, reflecting a stronger position for the yuan in recent trading.
Overall, while state interventions may temporarily influence the yuan's trajectory, broader forecasts suggest potential strength ahead, driven by improving fundamentals in China's economy and global sentiment.
