## Why Did the USD to RMB Exchange Rate Suddenly Strengthen in 2025? Will It Continue to Appreciate in the Future?

### The RMB appreciation cycle has begun, and the USD to RMB exchange rate has reached a 14-month high.

The performance of the RMB in 2025 has been surprising. After experiencing three consecutive years of depreciation pressure from 2022 to 2024, the RMB finally reversed its downward trend. The USD to RMB exchange rate fluctuated between 7.04 and 7.3 at the beginning of the year. As signals of Fed rate cuts strengthened and market sentiment improved, the RMB against the US dollar broke through 7.05 strongly on December 15, ultimately reaching 7.0404, the highest point in nearly 14 months.

This shift did not happen out of nowhere. Looking back at the year's trend, the RMB indeed faced considerable pressure in the first half—global trade uncertainties increased, the US dollar index continued to strengthen, and offshore RMB once dipped to 7.40, hitting a historic low since the 2015 exchange rate reform. However, in the second half, the situation began to turn around. With progress in China-US negotiations stabilizing and the US dollar index turning downward, the RMB started to show resilience and, along with other non-US currencies, entered an appreciation trajectory.

### Four Core Factors Determining the USD to RMB Exchange Rate

To judge the future direction of the USD against the RMB, four key variables must be understood.

**The Decline and Fluctuation of the US Dollar Index**

In the first half of 2025, the US dollar index fell from 109 to 98, a decline of nearly 10%, marking the weakest start since the 1970s. However, expectations of Fed rate cuts cooled, and the US economy outperformed expectations, leading the dollar to rebound in November and repeatedly surpass the 100 mark. By December, the Fed cut rates as scheduled, and the market turned more cautious about the dollar outlook, with the dollar index falling back to 97.869, returning to the 97.8–98.5 range. This oscillation reflects the delicate relationship between the dollar’s trend and Fed policy—rate cuts are usually unfavorable for the dollar, but economic resilience can support it. A moderate strengthening of the dollar tends to put depreciation pressure on the RMB, while a weakening dollar creates room for RMB appreciation.

**Constraints and Opportunities in China-US Trade Relations**

Recent negotiations in Kuala Lumpur have sent positive signals: the US will reduce tariffs on Chinese goods from 20% to 10%, and temporarily suspend the 24% additional tariffs until November 2026. Both countries also reached a consensus on suspending measures in areas like rare earths and port fees, and expanded agricultural product purchases. These developments lay a foundation for RMB appreciation. However, past lessons should not be ignored—similar agreements in Geneva in May 2025 quickly fell apart. Therefore, **the long-term sustainability of China-US trade relations remains the most important external factor in determining the USD to RMB exchange rate**. If current conditions persist, the RMB environment will stabilize; if tensions escalate, the RMB will face renewed pressure.

**Central Bank Policies: Easing and Tightening**

The People’s Bank of China tends to adopt easing policies to support economic recovery, especially amid a sluggish property market. Rate cuts or reserve requirement ratio reductions typically increase liquidity expectations, exerting downward pressure on the RMB. Conversely, if easing is coupled with stronger fiscal stimulus and economic stabilization, the RMB could be supported in the long term. Meanwhile, the Fed’s policy stance is also crucial—high interest rates tend to strengthen the dollar, while rate cuts weaken it. **The RMB and the US dollar index usually move inversely.**

**The Internationalization of the RMB**

The increasing use of the RMB in global trade settlements and the expansion of currency swap agreements with other countries could, over the long term, support RMB stability. However, in the short term, the dollar’s status as the world’s primary reserve currency remains difficult to challenge.

### What do investment banks say about the future of the USD to RMB exchange rate?

Many international investment banks are optimistic about the RMB outlook, and their reasoning is worth considering.

**Deutsche Bank** believes that the recent strengthening of the RMB against the dollar signals the start of a long-term appreciation cycle. The bank forecasts that the USD to RMB exchange rate will reach 7.0 by the end of 2025 and further appreciate to 6.7 by the end of 2026.

**Goldman Sachs**’s analysis is more aggressive. In a report, global FX strategist Kamakshya Trivedi raised the USD to RMB forecast from 7.35 significantly to 7.0 over the next 12 months, hinting that the RMB might "break 7" sooner than market expectations. Goldman’s logic is based on the fact that the **real effective exchange rate of the RMB is undervalued by 12% compared to its 10-year average, with an even larger undervaluation of 15% against the dollar**. Given this undervaluation and progress in China-US negotiations, Goldman expects the RMB to appreciate to 7.0 within 12 months. Additionally, Goldman emphasizes that strong Chinese exports support the RMB, and the Chinese government is more likely to use other policy tools to boost the economy rather than devalue the currency.

### Is it feasible to invest in RMB-related currency pairs now?

The answer is yes, but timing is critical.

In the short term, the RMB is expected to remain relatively strong but will fluctuate within a limited range, moving inversely to the dollar. The possibility of quickly breaking below 7.0 before the end of 2025 is low. Investors should focus on three major dynamic variables: the phased trend of the US dollar index, signals from the RMB midpoint rate, and the strength and pace of China’s stabilizing growth policies.

### How to independently judge the next move of the USD to RMB exchange rate?

Mastering the judgment of the RMB exchange rate hinges on understanding four dimensions.

**First, China’s central bank monetary policy orientation**

Monetary policy tightening or easing directly impacts money supply and thus the exchange rate. Easing policies (like rate cuts and reserve requirement reductions) increase liquidity expectations, leading to RMB depreciation; tightening policies tend to stimulate RMB appreciation. For example, in 2014, the People’s Bank of China cut interest rates six times and significantly lowered reserve requirements, during which the USD to RMB rate rose from 6 to 7.4, illustrating the profound influence of monetary policy.

**Second, China’s economic data performance**

When China’s economy grows steadily or outperforms other emerging markets, foreign capital inflows increase, boosting demand for the RMB and supporting its appreciation. Conversely, economic slowdown triggers capital outflows. Key indicators include: GDP (macro-economic condition), PMI (Purchasing Managers’ Index) released monthly—official versions focus on large enterprises, Caixin on small and medium enterprises; CPI (Consumer Price Index) measures inflation and economic heat; urban fixed asset investment reflects economic activity intensity.

**Third, the trend of the US dollar**

The strength or weakness of the dollar directly determines the USD to RMB movement. The policies of the Federal Reserve and the European Central Bank are often pivotal. For example, in 2017, the Eurozone’s strong economic recovery and GDP growth outpacing the US, combined with the ECB signaling tightening, caused the euro to rise and the dollar index to fall 15% throughout the year. During the same period, USD to RMB also declined, demonstrating their high correlation.

**Fourth, official policy orientation on the exchange rate**

Unlike freely floating currencies priced by the market, the RMB has experienced multiple exchange rate reforms since 1978. The May 26, 2017 reform introduced the "countercyclical factor" into the RMB’s midpoint rate calculation, strengthening official guidance. Recent observations show that such adjustments have a clear short-term impact on the exchange rate, but the medium- and long-term trend still depends on the overall market direction.

### Review of USD to RMB exchange rate changes over the past five years:

**2020**: Fluctuated between 6.9 and 7.0 at the start of the year. Due to China-US trade tensions and the pandemic, it briefly broke below 7.18 in May. As China quickly controlled the pandemic and economic recovery accelerated, coupled with the Fed’s near-zero rates and China’s steady policies, the RMB rebounded strongly to around 6.50 by year-end, appreciating 6% for the year.

**2021**: Strong exports, economic improvement, and a low dollar index kept USD to RMB in a narrow range of 6.35–6.58, with an average around 6.45, maintaining relative strength.

**2022**: The Fed’s aggressive rate hikes pushed the dollar index higher, while China’s pandemic policies and real estate crisis dragged on the economy. USD to RMB rose from 6.35 to above 7.25, depreciating 8% for the year, the largest decline in recent years.

**2023**: USD to RMB fluctuated between 6.83 and 7.35, averaging about 7.0. China’s post-pandemic recovery was weaker than expected, real estate issues persisted, and US high interest rates remained, putting pressure on the RMB.

**2024**: The weakening dollar eased RMB pressure, and China’s fiscal stimulus boosted confidence. USD to RMB rose from 7.1 to 7.3 mid-year, with offshore RMB breaking above 7.10 in August to a six-month high.

### Why is offshore RMB (CNH) more volatile?

Offshore RMB (CNH), traded in international markets (Hong Kong, Singapore, etc.), is less restricted by capital controls, reflecting global market sentiment, thus more volatile. In contrast, onshore RMB (CNY) is subject to capital restrictions, with the People’s Bank of China guiding via daily midpoint rates and foreign exchange interventions.

In 2025, despite multiple fluctuations, CNH against the dollar generally trended upward. Early in the year, tariffs and the dollar index soaring to 109.85 caused CNH to dip below 7.36, prompting the PBOC to issue 60 billion yuan in offshore bills to absorb liquidity and tighten the midpoint rate. Recently, as China-US dialogue eased, China’s stabilizing growth policies took effect, and Fed rate cut expectations increased, CNH strengthened significantly. On December 15, CNH broke below 7.05, rebounding over 4% from the year's high, reaching a 13-month high.

### Summary: Seize Investment Opportunities in the USD to RMB Exchange Rate

As China enters a monetary easing cycle, **the USD to RMB trend exhibits clear cyclical features**. Based on historical experience, similar policy cycles may last around ten years. Although short- and medium-term fluctuations caused by dollar volatility and other events are possible, the main trend remains relatively clear. Investors who can accurately grasp the influencing factors of RMB movement can greatly improve their profit potential. The forex market is primarily driven by macro factors, with transparent data, large trading volumes, and two-way trading, making it a relatively fair and attractive investment field.