Geopolitical Context - The ongoing competition between the US and China is expected to persist, with the US aiming to maintain its leadership in technology and soft power [1] - China's position as the global manufacturing hub remains strong, while the US continues to dominate in global policing [1] Economic Sanctions and Market Impact - Russia faced sanctions and was excluded from the SWIFT system following its invasion of Ukraine, which has implications for global financial systems [2] - The market crash on October 10, 2025, was partly attributed to aggressive tariffs imposed on Chinese imports by the US [2] Currency Dynamics - President Xi Jinping has expressed a desire for the yuan to become a global reserve currency, challenging the dominance of the US dollar [3][5] - The yuan is already recognized as a reserve currency by some central banks, but the US dollar remains the primary currency for global oil transactions [3] Central Bank Initiatives - Xi's call for a "strong" yuan indicates a strategic shift towards promoting the yuan as a credible alternative to the US dollar, especially during times of uncertainty [6][7] - China is expanding its Cross-Border Interbank Payment System (CIPS) to compete with SWIFT, aiming to facilitate trade without US oversight [7] Digital Currency Adoption - The introduction of the "e-CNY" for international trade is part of China's strategy to enhance the yuan's global presence, offering faster and cheaper transactions outside the USD-based system [8]

Core Viewpoint - The yuan has surpassed the psychological milestone of 7 per dollar for the first time since September 2024, driven by expectations that China's central bank will facilitate gradual currency appreciation to enhance market confidence [1]. Group 1: Currency Performance - The offshore yuan appreciated by as much as 0.2% to 6.9964 per dollar, following the People's Bank of China's strengthening of its daily reference rate to the highest level since September 2024 [1]. - The yuan is on track for its best performance against the dollar in five years, attributed to a decline in the US dollar, capital inflows into China's stock market, and reduced geopolitical tensions [2]. - In onshore trading, the yuan increased by 0.1% to 7.0067 per dollar, with a notable trend of dollar selling observed among major Chinese banks [3]. Group 2: Market Dynamics - The strengthening of the yuan is supported by the weakness of the dollar and seasonal foreign-exchange conversions by exporters, which may enhance the attractiveness of China's capital markets to foreign investors [3]. - Despite the recent gains, analysts suggest that the yuan remains undervalued by approximately 25% relative to economic fundamentals, considering China's persistent deflation [4]. - Predictions indicate that the yuan will likely maintain a strong position within the range of 6.95-7 per dollar in the first half of the upcoming year [5].