In late December 2025, the renminbi staged a strong year-end rally. During trading on 25 December, the offshore RMB broke through the 7.0 mark against the US dollar, briefly touching 6.9985 — its strongest level since September 2024. This “breaking 7” move is more than just a technical breach; it has sparked intense debate and positioning around what comes next. Short-term appreciation momentum, clear policy signals and a highly uncertain external environment are now interacting to create a complex picture for RMB trading around this key threshold.

Core Drivers Behind the Recent Rally

The latest leg of RMB strength is not the result of a single factor, but rather the resonance of both external and domestic tailwinds.

1. External pressure easing: Fed rate cuts and a weaker dollar
The immediate trigger has been the Federal Reserve’s December rate cut, combined with rising expectations that the easing cycle will continue into the first half of 2026. As a result, the US Dollar Index has weakened, falling from around 100 in November to near 98. This has created space for broad appreciation across major non-US currencies, including the renminbi.

2. Domestic seasonal forces and confidence support
Year-end “FX settlement demand” has acted as an amplifier. Exporters typically increase their FX conversion at the end of the year for financial reporting and cash-flow needs, driving stronger demand to sell dollars and buy RMB. At the same time, expectations for a stronger currency and actual settlement flows reinforce each other, adding short-term fuel to the move.

On a deeper level, China’s macro fundamentals remain relatively solid. A goods trade surplus exceeding one trillion US dollars in the first 11 months of the year and the high likelihood of meeting the full-year growth target provide a fundamental anchor for the exchange rate. Meanwhile, the performance of domestic capital markets continues to attract foreign inflows, adding further RMB buying interest.

After “Breaking 7”: What Next?

The 7.0 level has special psychological and technical significance in the history of RMB trading. Over the past several years, the exchange rate has broken above and below 7.0 multiple times, and two-way fluctuation has become the norm.

Authoritative experts note that “7.0 yuan is the point where bulls and bears diverge on the RMB.” Once the rate breaks through this level, the previously one-sided bullish consensus tends to weaken, while latent demand to buy foreign currency can increase, naturally creating a counter-balancing force. In this sense, the latest move below 7.0 reflects a shift toward a new equilibrium level driven by market forces, but does not automatically imply the start of a new one-way appreciation trend.

Additionally, domestic policy has provided clear direction. In its recently released China Financial Stability Report (2025) and during regular meetings of the Monetary Policy Committee, the People's Bank of China has repeatedly emphasized the need to uphold the decisive role of the market in exchange rate formation while “preventing excessive exchange rate fluctuations and maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level.” This objective does not imply a fixed exchange rate, but rather aims to prevent excessive short-term fluctuations in one direction (overshooting) and maintain financial market order. It guards against both depreciation risks and the dangers of overly rapid appreciation. Furthermore, the central bank has explicitly stated that it possesses a rich array of countercyclical policy tools and will not allow the RMB to appreciate significantly in one direction. This implies that if appreciation expectations become overly uniform and risk triggering overshooting, the likelihood of policy intervention will increase. 

Synthesizing market perspectives, expectations for the renminbi's future trajectory remain cautiously optimistic, with bidirectional fluctuations and a generally stable-to-strong trend emerging as the prevailing view. Guosheng Securities anticipates the renminbi will maintain overall stability with upward momentum, experiencing oscillating appreciation. While it may temporarily dip below 7, sustained unilateral appreciation is unlikely. Zhang Ming of the Chinese Academy of Social Sciences stated: Under the combined influence of internal and external factors, the renminbi is expected to appreciate modestly, fluctuating within the 6.8-7.2 range. In summary, the prevailing market consensus is that key variables such as the relative strength of economic recovery and the trend of the U.S. dollar will determine the renminbi's trajectory. 

TMGM concludes by noting that the US Dollar Index has already accumulated significant declines with potential for a corrective rebound. Should US economic or inflation data exceed expectations, it could reverse the dollar's weakness. The current US-China interest rate differential remains markedly inverted at approximately 230 basis points, meaning incentives to hold dollars persist should the renminbi's appreciation trend moderate. 

The RMB's “breakthrough of 7” reflects short-term bullish factors prevailing, but does not necessarily signal the start of a new appreciation cycle. Looking ahead to 2026, the renminbi exchange rate will operate within a framework shaped by three factors: “moderate economic recovery fundamentals,” “uncertainty surrounding the Fed's policy path,” and “the central bank's clear intent to prevent overshooting.”