The People's Bank of China (PBOC) set the yuan's daily reference rate at ¥7.0358 per US dollar on Friday, December 26, 2025. This fixing was 301 pips weaker than the median estimate in a Bloomberg survey of traders and analysts, marking the largest such miss since 2018. The move came just one day after the offshore yuan (CNH) breached the ¥7 per dollar level for the first time since September 2024, trading as strong as 6.9964.
Despite the weaker-than-expected fix, the PBOC's rate was still higher than the previous day's, indicating a controlled allowance for currency strength. Analysts interpret this as part of a measured strategy by policymakers to permit gradual gains while tightly controlling daily volatility. The yuan has surged more than 3.8% this year, bolstered by a weaker US dollar, foreign inflows into China's rebounding stock market, and easing global tensions.
However, the currency's strength presents a policy dilemma. While some domestic economists and former central bank officials advocate for a stronger yuan to reduce export dependency and ease trade tensions, the PBOC appears cautious. Market participants noted that state-owned banks were actively buying dollars around the ¥7.006 level during onshore trading, a move seen as an effort to temper the rally and deter speculators.
Major financial institutions have issued contrasting forecasts. Analysts from Goldman Sachs and Bank of America project the yuan will push past ¥7 per dollar in 2026. In contrast, a research note from China Minsheng Bank suggested the yuan could find support early next year from seasonal foreign exchange flows, with analysts Wen Bin and Li Xin stating the central bank's strategy is designed to keep gains modest. ANZ senior strategist Zhaopeng Xing expects the yuan to trade in a range of ¥6.95 to ¥7.00 in the first half of 2026.
The currency dynamics unfold against a backdrop of renewed stress in China's property sector. Developer China Vanke Co. faced a critical deadline on Thursday, December 25, as holders of a 3.7 billion yuan ($526 million) bond voted on proposals to delay repayment. A failure to secure approval risks a default when the bond matures on December 28. S&P Global Ratings recently cut Vanke's long-term issuer rating to 'selective default'.
