The Chinese yuan is on track to record its strongest annual performance in five years, with growing investor optimism about China's economic assets overcoming worries related to trade tensions with the United States.
A Remarkable Reversal from 2018-19
This year's strength presents a stark contrast to the currency's trajectory during the initial phase of the US-China trade war. In 2025, the offshore yuan has gained nearly 4% against the US dollar. This rally has been supported by the authorities' management of the daily reference rate, a surge in Chinese stocks attracting foreign capital, and a broader weakening of the dollar itself.
Back in 2018-19, the narrative was different. The yuan plunged more than 13% from its March 2018 peak to a low point in September 2019. Market speculation at the time centered on Beijing potentially devaluing the currency to cushion the economy from trade war impacts.
Analysts Raise Forecasts for the Coming Year
The bullish sentiment is extending into 2026, with several major financial institutions upgrading their forecasts. Goldman Sachs Group Inc. raised its projections last month, predicting the onshore yuan could appreciate to 6.95 against the dollar in three months and reach 6.85 in a year. Their optimism is fueled by China's robust exports and current-account surplus.
Wee Khoon Chong, a senior Asia Pacific market strategist at BNY in Hong Kong, noted, "The Chinese yuan has room to strengthen from here... A stable and strong yuan plays an important role to secure the market’s and investors’ confidence." He sees the dollar-yuan rate moving toward 7 sometime in 2026.
Lin Li of MUFG Bank Ltd. in Hong Kong expects Federal Reserve interest-rate cuts to pressure the dollar and support Asian currencies, with the yuan potentially ending 2026 at 6.95 per dollar.
Drivers and Potential Roadblocks
The yuan's path this year wasn't entirely smooth. It faced sell-offs in April amid tariff announcements from former US President Donald Trump and struggled mid-year due to economic sluggishness. Its sustained rally only resumed in August with improving global risk sentiment.
A key tailwind has been the dollar's decline. The Bloomberg Dollar Spot Index has fallen roughly 7% in 2025, driven by concerns over US policy uncertainty and a large budget deficit.
China's economic strategy has also evolved. Unlike in 2018-19, when it was heavily dependent on US consumers, China has since diversified exports toward the Global South and strengthened its grip on critical supply chains like rare earths.
Some, like former US Treasury officials Brad Setser and Mark Sobel, argue the yuan is "hugely undervalued"—about 18% below fair value—and call for sharper appreciation. Stephen Jen of Eurizon SLJ Capital agrees, stating pressure for the yuan to rally will be "one way and mounting."
However, rapid gains carry risks. A substantially stronger currency could hurt export competitiveness and invite volatile "hot money" inflows, threatening financial stability. The People's Bank of China has recently shown signs of wanting to moderate the pace, setting its daily fixing weaker than market estimates.
Despite this, the consensus leans toward continued strength. Chi Lo of BNP Paribas Asset Management suggests the yuan could hit 7 by end-2025 and advance to the 6.5-6.8 range in 2026 if trade discussions progress and investor confidence returns.
