The Chinese yuan has demonstrated significant strength as the Spring Festival approaches. On February 12, both the onshore and offshore yuan exchange rates against the US dollar surpassed the 6.9 threshold, reaching their highest levels since April 2023 during the trading session.
This appreciation trend, which began quietly towards the end of last year, is drawing widespread market attention. Questions are being raised about the sustainability and underlying strength of the yuan's current performance.
Market analysis points to the concentrated release of foreign exchange settlements as the primary driver behind the yuan's recent gains. According to a chief macro analyst at Dongfang Jincheng, seasonal increases in corporate foreign exchange settlement demands towards the year-end, combined with the yuan's persistent appreciation, have potentially accelerated the release of accumulated settlement demand from previously strong export growth.
The enthusiasm for foreign exchange settlements is not driven by a single factor but results from multiple supporting elements. Analysis from the Financial Markets Department of China Construction Bank suggests that corporate settlement flows are primarily supported by three factors: resilient exports maintaining a high trade surplus; positive sentiment in domestic equity markets, with December 2025 seeing a net inflow of $11.5 billion in securities investments, a record monthly high; and concentrated seasonal corporate settlement demand before the Spring Festival, amplifying the impact of settlements.
Changes in the external environment have also contributed to the yuan's strength. The analyst noted that recent criminal investigations into the Federal Reserve Chairman by the US Department of Justice have impacted the perceived independence of the Fed. Furthermore, the new Fed Chair's stance favoring "interest rate cuts and balance sheet reduction" has yet to reverse the US dollar's weakness. With non-US currencies generally appreciating, the yuan has risen accordingly.
Looking ahead, several experts caution that the future trajectory of the yuan's exchange rate remains highly uncertain. They advise businesses and financial institutions to avoid blindly following trends or speculating on exchange rate movements.
Amid the current sustained strengthening of the yuan, potential future depreciation pressures against the US dollar should not be overlooked. The analyst predicts that the yuan will likely maintain a relatively strong trend around the Spring Festival, given the ongoing release of corporate settlement demand. However, after a significant decline in the US dollar index during 2025, which absorbed various negative factors including expectations of Fed rate cuts, the dollar index is expected to stabilize in 2026. This stabilization could substantially reduce the momentum for passive appreciation of the yuan against the dollar.
The Financial Markets Department of China Construction Bank indicated that seasonal settlement forces may gradually weaken after the Spring Festival, leading to a more balanced supply and demand in foreign exchange transactions, with exchange rates returning to being driven by economic fundamentals. Simultaneously, the market needs to closely monitor the balance between appreciation expectations and policies aimed at "stabilizing the exchange rate." The yuan's exchange rate is expected to exhibit a two-way fluctuation pattern.
Policy signals also emphasize "stabilizing expectations and preventing overshooting." The People's Bank of China's Q4 2025 Monetary Policy Execution Report reiterated its commitment to a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies. The central bank aims to maintain exchange rate flexibility, allowing it to function as an automatic stabilizer for macroeconomic and balance of payments adjustments, while strengthening expectation guidance to prevent exchange rate overshooting risks and keep the yuan fundamentally stable at a reasonable and balanced level.
Given potential uncertainties, betting on a one-sided market movement is inadvisable. A chief economist at CITIC Securities stated that the goal of the central bank's exchange rate stabilization tools is likely to guide market expectations, prevent the formation of a one-sided consensus in the forex market that could become self-reinforcing, and help maintain the yuan's relative resilience.
The analyst reminded that exchange rates are notoriously difficult to predict. Export-oriented enterprises should avoid making one-sided bets during yuan fluctuations, focus on their core businesses, appropriately utilize various forex derivative instruments to control exchange rate risk exposure, lock in export revenues, and stabilize operational expectations. For individuals, foreign exchange transactions should be based on genuine needs.