Core Viewpoint - In 2025, the interbank foreign exchange market in China operated smoothly under comprehensive regulatory measures, with a steady increase in trading volume and active market participation, achieving a record high in transaction scale and daily average turnover [1][2]. Group 1: Foreign Exchange Market Performance - The cumulative transaction volume in the interbank foreign exchange market reached 48.52 trillion USD in 2025, with a daily average turnover of 199.66 billion USD, marking a year-on-year growth of 6.54% [1]. - The daily average transaction volume for the RMB foreign exchange market was 14.87 billion USD, with all varieties except for forwards showing an increase in daily average transaction volume [1]. - By the end of 2025, the RMB to USD exchange rate was reported at 6.9890, appreciating by 4.43% compared to the end of the previous year [2][3]. Group 2: RMB Exchange Rate Dynamics - Throughout 2025, the RMB to USD exchange rate experienced fluctuations, initially under pressure but later showing signs of strengthening and significant appreciation [2][3]. - The CFETS RMB exchange rate index ended the year at 97.99 points, reflecting a decline of 3.43% for the year [2]. - The annualized volatility of the exchange rate was recorded at 2.53%, a decrease of 0.51 percentage points from 2024 [2]. Group 3: Influencing Factors on RMB Exchange Rate - The RMB exchange rate faced pressure in April 2025 due to heightened trade tensions between China and the US, with the onshore RMB briefly falling below the 7.35 mark [3]. - Factors contributing to the RMB's subsequent rebound included easing trade tensions and a weakening US dollar due to concerns over the US economic outlook and fiscal issues [4]. - By the end of 2025, both onshore and offshore RMB broke through the significant psychological level of 7.0, driven by improved domestic economic fundamentals and stabilizing market expectations [4]. Group 4: Swap Market Trends - In 2025, the RMB swap curve shifted upward, reaching a three-year high, influenced by narrowing interest rate differentials between China and the US [5][6]. - The one-year RMB to USD swap points showed a significant upward trend, particularly in the second half of the year, with the spread against interest rate parity stabilizing in positive territory [6]. - The People's Bank of China issued a total of 300 billion RMB in offshore central bank bills throughout the year, maintaining tight liquidity in the offshore RMB market [6]. Group 5: Dollar Market Liquidity - The domestic dollar borrowing rates remained low throughout 2025, with the overnight borrowing rate fluctuating between 4.25% and 4.33% [7]. - The interest rate differential between domestic and foreign dollar markets widened in the second half of the year, reaching a three-year low of -40 basis points [7]. - By the end of 2025, domestic overnight rates and SOFR were recorded at 3.62% and 3.87%, respectively, both showing declines from the previous year [7].

Group 1: CFETS Index Overview - The CFETS RMB Exchange Rate Index is a nominal basket currency index based on trade shares, using geometric averaging of the RMB against a basket of currencies[2] - The currency basket is adjusted annually based on trade data from two years prior, with the new weights effective from January 1, 2026, based on 2024 trade data[3] Group 2: Weight Adjustments and Trends - The new weights for 2026 align closely with the 2024 trade shares, with the USD weight at 18.31% and the EUR weight at 17.86%, both exceeding their respective trade share benchmarks by 1.07 and 1.69 percentage points[4] - The concentration of the top five currencies (USD, EUR, JPY, KRW, AUD) has declined for four consecutive years, reaching 58.15% in 2026, down from 66.03% in 2020, averaging a decline of 1.31 percentage points per year[4][19] - The weight of developed market currencies has decreased from 76.97% in 2020 to 69.56% in 2026, while emerging market currencies have increased from 23.03% to 30.44%[5][26] Group 3: Currency Weight Changes - The USD weight has dropped from 19.88% in 2022 to 18.31% in 2026, with an average annual reduction of approximately 0.51 percentage points from 2024 to 2026[5][30] - Among emerging market currencies, ASEAN, Middle Eastern, and Russian currencies have the highest weights, collectively accounting for 19.29% of the emerging market currency weight in 2026[6][32] Group 4: Future Implications - The trade share data from 2025 will guide the currency weight adjustments for 2027, indicating a potential continued decline in the concentration of the top five currencies[7] - The influence coefficient of the USD index on the USDCNY midpoint has decreased from 0.337 to 0.331, indicating reduced depreciation pressure on the RMB against the USD[8][47]

Core Viewpoint - The CFETS RMB Exchange Rate Index is undergoing its annual weight adjustment to enhance the representativeness of the currency basket, effective from January 1, 2026 [1][2] Group 1: CFETS RMB Exchange Rate Index Adjustments - The weight of the US dollar in the new CFETS currency basket is reduced from 0.18903 to 0.183067910333, while the euro's weight decreases from 0.17902 to 0.178618845848 [1] - The South Korean won replaces the Japanese yen as the third-largest currency in the basket, with the new weight for the won being 0.084557506297 and for the yen being 0.081182351858 [1] - The Australian dollar's weight is decreased from 0.05947 to 0.054093213303, while the weights for the Malaysian ringgit and the Russian ruble have increased compared to 2024 [1] Group 2: BIS Currency Basket Adjustments - The CFETS RMB Exchange Rate Index's currency weights are calculated using trade-weighted methods that consider re-export trade factors, with the current version based on 2023 trade data [2] - The new index will utilize 2024 trade data for weight adjustments, and historical simulations indicate that the trends of the new and current indices are largely consistent [2] - The BIS currency basket will remove the Bulgarian lev due to Bulgaria's entry into the Eurozone in 2026, and the corresponding weight will be added to the euro [2]

Core Viewpoint - The People's Bank of China has announced adjustments to the weights of the currency basket for the CFETS RMB Exchange Rate Index and the BIS currency basket for the RMB Exchange Rate Index, effective from January 1, 2026 [1] Group 1: CFETS RMB Exchange Rate Index Adjustments - The weight of the US dollar in the new CFETS currency basket has decreased from approximately 0.19460 to 0.183067910333 [1] - The weight of the euro has been reduced from approximately 0.18079 to 0.178618845848 [1] - The weight of the Japanese yen has declined from approximately 0.08963 to 0.081182351858 [1] - The weight of the Russian ruble has increased from approximately 0.04603 to 0.050400759694 [1] Group 2: BIS Currency Basket Adjustments - The announcement includes changes to the BIS currency basket for the RMB Exchange Rate Index, although specific weight changes for this basket are not detailed in the announcement [1]

Group 1 - The announcement from the China Foreign Exchange Trading Center details adjustments to the CFETS RMB exchange rate index and the BIS currency basket RMB exchange rate index, including changes in currency weights [1] - The new CFETS currency basket assigns a weight of 0.18307 to the US dollar [1] - The updated BIS currency basket will remove the Bulgarian lev and increase the weight of the euro accordingly [1] Group 2 - The trading center will maintain the currency basket and weights for the SDR currency basket RMB exchange rate index unchanged [1]

Core Viewpoint - The resilience of the RMB exchange rate is supported by factors such as net cross-border capital inflows, balanced foreign exchange settlement, stable market expectations regarding exchange rate fluctuations, and active foreign exchange market trading [1] Economic Fundamentals - China's economy is showing steady improvement, with positive progress in economic restructuring and a strong growth momentum, making it likely to achieve a GDP growth target of around 5% for the year [1] - The anticipated start of the Federal Reserve's interest rate cut cycle in September may lead to a weaker USD, potentially driving RMB appreciation and increasing corporate foreign exchange settlement demand, especially in the fourth quarter [1] Exchange Rate Mechanism - The CFETS RMB exchange rate index provides a comprehensive reflection of the value changes of the currency, incorporating major foreign currencies such as USD, EUR, GBP, and JPY, calculated using trade-weighted methods [1] - The introduction of the "counter-cyclical factor" has effectively mitigated market pro-cyclical behavior and stabilized market expectations since its implementation in 2017 [3] Policy Responses - The People's Bank of China (PBOC) has a range of policy tools to enhance the RMB exchange rate's flexibility and maintain stability, including counter-cyclical factors, offshore liquidity management, and foreign exchange reserve interventions [2] - The recent alignment of the RMB central parity with market trading prices indicates a high degree of market confidence, with many quoting banks moving away from using the counter-cyclical factor [2] Future Outlook - The RMB exchange rate is expected to be more determined by market supply and demand, with a projected central level of around 7.0 against the USD by 2026, potentially peaking near 6.8 [4] - The core factors driving the RMB/USD exchange rate in the first half of 2026 are anticipated to be economic recovery, while a slight decline may occur in the second half of the year [4]

Core Viewpoint - The CFETS RMB exchange rate index on December 19 is reported at 97.88, reflecting an increase of 0.17 compared to the last trading day of the previous week on December 12 [1] Group 1: RMB Exchange Rate Indices - The CFETS RMB exchange rate index increased by 0.17 from December 12 to December 19 [1] - The BIS currency basket index for RMB on December 19 is 104.56, which is an increase of 0.28 from December 12 [1] - The SDR currency basket index for RMB on December 19 is 92.36, showing an increase of 0.17 from December 12 [1]

Core Viewpoint - The recent strengthening of the Chinese yuan against the US dollar has garnered significant market attention, with the yuan's mid-price rising to 7.0779, the highest since October 14, 2024, driven by expectations of a potential interest rate cut by the Federal Reserve in December [1][2]. Group 1: Reasons for Yuan Strengthening - The yuan's recent strength is attributed to two main factors: the continuous adjustment of the yuan's mid-price towards a stronger direction and the overall positive performance of the domestic economy, which has not fully matched the depreciation of the dollar [2][3]. - Increased demand for currency conversion (结汇) due to better-than-expected export performance and a recovering capital market has bolstered confidence in the yuan [2][3]. Group 2: Impacts of Yuan Strengthening - The appreciation of the yuan is expected to boost market confidence, particularly among foreign investors, making holding yuan-denominated assets more attractive and potentially leading to increased capital inflows into Chinese stock and bond markets [5][6]. - For foreign trade enterprises, the yuan's appreciation may pose challenges by making exports more expensive, while simultaneously reducing import costs for businesses reliant on imported goods [5][6]. Group 3: Future Outlook - The yuan is likely to maintain a strong position in the short term, influenced by the dollar's performance, the central bank's control over the mid-price, and domestic economic growth policies [7][8]. - While the yuan may experience fluctuations, a significant appreciation beyond 7.0 against the dollar before the end of the year is considered unlikely, with a stable dual-directional fluctuation expected through 2026 [8][9].

Core Viewpoint - The recent strengthening of the Renminbi (RMB) against the US dollar reflects a dual strength in both currencies, with the RMB reaching a high point not seen in over a year, supported by various economic factors [1][2]. Group 1: Currency Performance - The RMB to USD central parity rate was adjusted upwards on November 26, reaching around 7.08, with both onshore and offshore RMB showing gains [1]. - The USD index has risen from approximately 96 in mid-September to around 100, while the RMB has shown an upward trend against the dollar, indicating a strong performance against a basket of currencies [1]. Group 2: Economic Fundamentals - China's economy has demonstrated resilience this year, with enhanced export strength and a favorable international balance of payments, totaling $11.6 trillion in foreign exchange receipts for the first three quarters, a historical high for the period [1]. - There has been a net inflow of $119.7 billion in cross-border capital, surpassing the previous year's figures, indicating a positive trend in foreign exchange market expectations and supply-demand dynamics [1]. Group 3: Market Expectations - The upcoming Federal Reserve interest rate cuts are expected to further support the RMB's strength, alongside the traditional seasonal peak for currency settlement at year-end [2]. - The foreign exchange market in China has remained stable amid complex international conditions, with a general expectation for the RMB to maintain stability or even appreciate in the near term [2]. - Companies are increasingly adopting a neutral stance on exchange rate risks, improving their risk management capabilities, which is expected to solidify the foundation for a stable RMB exchange rate [2].

Core Insights - The offshore and onshore RMB exchange rates against the USD have both surpassed the 7.09 mark, reaching a new high in over a year, with the central parity rate set at 7.0826 RMB per USD, an increase of 21 basis points from the previous trading day [1] - The RMB's mid-price has appreciated approximately 1000 basis points year-to-date, supported by a weaker USD and strong domestic equity market performance attracting foreign investment [1] - Experts predict that the RMB will maintain a strong performance against the USD in the short term and may experience moderate appreciation through 2026 [1] Group 1 - The recent appreciation of the RMB is attributed to two main factors: the continuous adjustment of the RMB's mid-price towards a stronger direction and the robust performance of the domestic economy since the beginning of the year, alongside a significant decline in the USD [2] - The adjustment in the RMB exchange rate is aimed at stabilizing the external environment for China's foreign trade enterprises, with expectations of continued strong performance in the short term [2] - The anticipated future actions of the Federal Reserve, including potential interest rate cuts, and the impact of the Trump administration's tariff policies on the US economy are expected to limit the upward potential of the USD index [2] Group 2 - The impact of external fluctuations on China's exports is becoming evident in the fourth quarter, with significant policy measures in place to stabilize the economy, including the issuance of 500 billion RMB in new policy financial instruments and local government debt limits [3] - The internal economic fundamentals are expected to provide substantial support for the RMB exchange rate, with a focus on maintaining a stable RMB against the USD [3] - The RMB exchange rate is projected to remain stable, with limited potential for rapid appreciation above the 7.0 mark before the end of the year [3]