Outlook
The yuan remains under a framework of gradual strengthening, aided by the PBOC’s moderate loosening and its readiness to prevent rapid gains that would pressure exporters. January policy actions, including a 0.25 percentage point cut in structural policy tools and a CNY 1 trillion facility to support private enterprises, are designed to stimulate credit in key sectors while keeping a measured path for the currency. At the same time, external dynamics—such as markets pricing in Fed rate cuts—support a softer dollar, which can help the yuan firm modestly. China’s policy push toward financial openness and yuan internationalization adds a background of structural support, even as domestic growth remains uneven and policy aims balance growth with stability. In this environment, the CNY is likely to trade within a narrow range with a gradual bias toward appreciation, barring surprise shifts in policy or external risk sentiment.
Key drivers
- PBOC policy easing: On January 15, 2026, the PBOC cut structural policy tool rates by 0.25 percentage points and launched a CNY 1 trillion facility to back private enterprises, signaling a moderately loose stance to spur credit growth.
- Controlled yuan appreciation: The central bank appears to，要 manage the yuan’s pace of appreciation to avoid rapid gains that could hurt exporters, signaling a preference for gradual strengthening with the daily reference rate kept below 7.00 per USD reference.
- Capital flows and trade strength: December 2025 saw banks selling a record USD 99.9 billion back into the yuan, supported by a strong trade surplus and positive sentiment, underscoring ongoing FX stability efforts.
- Internationalization efforts: Initiatives such as CIPS and the expansion of the digital yuan continue to broaden yuan use in global trade and finance, reducing reliance on the dollar over time.
- External policy backdrop: Markets price in potential US rate cuts, which could influence USD strength and provide room for the yuan to firm further if domestic policy remains supportive.
- Domestic momentum: A policy environment focused on stimulus and macro stabilization, paired with positive market sentiment (including a recent rise in equities), supports a favorable backdrop for gradual yuan strength.
Range
CNY/USD is at 0.1446, 1.4% above its 3-month average of 0.1426, having traded in a stable 3.0% range from 0.1405 to 0.1447. CNY/EUR stands at 0.1218, near its 3-month average, with a 3.7% range from 0.1195 to 0.1239. CNY/GBP is at 0.1062, near its 3-month average, within a 3.8% range from 0.1039 to 0.1078. CNY/JPY is at 22.16 per 1 CNY, near seven-day lows and about 0.5% below its 3-month average of 22.27, within a 3-month range from 21.73 to 22.81.
What could change it
- Policy shifts by the PBOC: Further easing or a change in the pace of tightening could alter the directional bias for the yuan, influencing carry and capital flows.
- US rate path and dollar moves: If Fed rate cuts proceed as markets expect, USD weakness could support further yuan firmness; if expectations shift, the yuan may face renewed headwinds.
- Capital flows swings: Large shifts in capital inflows or outflows, driven by global risk sentiment or domestic policy signals, could deepen or dampen yuan volatility.
- External shocks or trade developments: Escalation in trade tensions or geopolitical tensions could impact risk sentiment and demand for the yuan.
- Domestic data surprises: Stronger-than-expected growth or inflation dynamics could influence monetary stance expectations and the currency path.
