Onshore yuan breaks above 7 against the US dollar, highest since May 2023.

The onshore RMB exchange rate against the US dollar has broken through a key psychological threshold, reaching its highest level in nearly two and a half years.

On December 30, the onshore RMB soared past the 7.0 mark against the US dollar, hitting a high of 6.9960, an increase of 0.1%, marking its highest point since May 17, 2023. Earlier, the offshore RMB had already broken through this closely watched psychological threshold on December 25.

Notably, during December, the central bank frequently intervened in the onshore market. On the 26th, the RMB's midpoint against the US dollar was raised by 34 points, reaching a new high in over a year, yet it was 301 points weaker than market expectations—a record gap since 2018. Recently, the central bank emphasized the need to stabilize market expectations and guard against exchange rate overshooting risks.

Support from Foreign Capital Inflow and Economic Recovery Expectations

This breakthrough comes as the People’s Bank of China sets a relatively weak daily midpoint. On the 26th, the RMB midpoint was set at 7.0358 against the dollar, up 34 points, the highest since September 30, 2024. This level is 301 points weaker than the average forecast by traders and analysts in a Bloomberg survey. The size of this deviation not only reflects regulatory guidance, but is also the largest gap between the midpoint and market forecasts since the survey began in 2018.

According to CCTV News, the Monetary Policy Committee of the People’s Bank of China recently held its regular meeting for the fourth quarter of 2025. The meeting stressed enhancing the resilience of the foreign exchange market, stabilizing market expectations, guarding against exchange rate overshooting risks, and keeping the RMB exchange rate basically stable at a reasonable level.

Huatai Research stated that attention should be given to a potential positive start in 2026 and further easing of China-US economic and trade relations. For the market environment, RMB appreciation (correction of undervaluation) at this stage is expected to boost foreign investors' interest and risk appetite for RMB assets, creating a "virtuous cycle" of capital inflows, driving up asset valuations and interbank liquidity, which could help ease financial conditions.

BNY market strategist Wee Khoon Chong said that the RMB could appreciate further, mainly supported by foreign capital inflow, expectations of an economic recovery, and optimism in the tech sector. "We have ample confidence that, supported by capital inflows and economic recovery, the RMB will continue to strengthen in 2026," he said.

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