Core Insights - The article discusses the recent trends in the foreign exchange market, particularly focusing on the RMB/USD exchange rate and the behavior of banks in managing foreign exchange positions amid changing market conditions [1][12]. Exchange Rate Trends - Since March 2025, the RMB has shown an upward trend against the USD, with banks experiencing a continuous surplus in foreign exchange settlements for six months, the longest period since August 2021 [1]. - The average exchange rate for bank settlements has increased by approximately 1.2% compared to previous periods, indicating a "buy low, sell high" strategy [14]. Historical Context of Exchange Rate Fluctuations - The article outlines six phases of RMB exchange rate trends since the 2005 reform, highlighting periods of both appreciation and depreciation, with the most recent phase starting in March 2025 showing a surplus in foreign exchange settlements despite ongoing trade tensions [2][4]. - The average settlement rates for foreign exchange have varied significantly over the years, reflecting changes in market sentiment and external economic pressures [3][4]. Market Behavior and Bank Strategies - The willingness to purchase foreign exchange has decreased, while the motivation to sell has increased, indicating a shift in market dynamics [4]. - Banks have adjusted their foreign exchange positions in response to market conditions, acting as liquidity buffers in the foreign exchange market [9][10]. Financial Positioning and Asset Management - By the end of Q1 2025, the private sector's net foreign position turned positive for the first time, indicating a significant increase in foreign financial assets [7][8]. - The article notes that banks have been increasing their foreign exchange positions, which is seen as a rational response to market conditions, rather than speculative behavior [12][14].

Core Viewpoint - The current behavior of banks in repurchasing previously "advanced" dollar shorts at the current price level is rational, especially in the context of the RMB exchange rate appreciating against the backdrop of extreme tariff pressures in 2025 [1][22]. Summary by Sections Exchange Rate Dynamics - Since March 2025, banks have experienced a continuous surplus in foreign exchange settlement and sales for six months, marking the longest period since August 2021 [1]. - The RMB exchange rate has shown a reversal trend, with the foreign exchange supply exceeding demand since March 2025, despite renewed trade frictions [2][22]. Historical Context of Foreign Exchange Supply and Demand - The foreign exchange supply and demand dynamics can be categorized into six phases since the 2005 exchange rate reform, with the most recent phase indicating a surplus in foreign exchange supply [2]. - The average settlement rate for foreign exchange has fluctuated significantly across different periods, reflecting changes in market sentiment and external pressures [4][6][7][8]. Market Behavior and Trends - The willingness to settle foreign exchange has generally decreased since July 2014, while the motivation to purchase foreign exchange has increased, indicating a shift in market behavior [8]. - The net foreign position of the private sector turned positive for the first time by the end of Q1 2025, indicating a significant increase in foreign asset allocation [12][15]. Bank's Role in Foreign Exchange Market - Banks have taken on the role of liquidity regulators in the foreign exchange market, adjusting their positions based on the supply-demand dynamics without direct intervention from the central bank [16][20]. - The behavior of banks in increasing foreign exchange positions is seen as rational, especially given the current market conditions and the need for risk management [20][22]. Recent Developments - From March to August 2025, banks recorded a cumulative surplus in foreign exchange settlement, indicating a shift in market conditions [22]. - The average purchase price of foreign exchange by banks has appreciated compared to previous periods, aligning with a strategy of "buy low, sell high" [22].