The Chinese yuan has surged to 6.91 per US dollar, marking its strongest level since May 2023 and its longest winning streak since 2020–2021, with a 5% gain since the start of 2025. This rally is driven by deliberate actions from China's financial authorities, who are instructing banks to reduce their purchases of US Treasuries and cut dollar exposure. Concurrently, the US dollar is weakening, with the Bloomberg Dollar Spot Index dropping 1.7% this year after an 8% plunge in 2025.
State Street strategist Lee Ferridge warns the dollar could lose another 10% in 2026 if the Federal Reserve adopts a more aggressive rate-cutting stance. He suggests a third rate cut is "possible," influenced not only by economic data but also by potential political pressure from President Donald Trump on the next Fed Chair. The first cut is anticipated around June, with markets expecting two quarter-point reductions by year-end.
In a significant regulatory move, the People's Bank of China (PBOC) and other agencies issued a ban on February 6 targeting unapproved yuan-pegged stablecoins and tokenized risk-weighted assets (RWAs), both domestic and foreign. The directive prohibits businesses from using terms like "stablecoin," "RWA," or "cryptocurrency" in their names or operations. This crackdown is explicitly framed as a measure to protect the yuan's stability and to promote the adoption of China's state-backed central bank digital currency, the e-CNY.
Analysts at Societe Generale highlight the technical and psychological importance of the USD/CNY pair approaching the 6.90 threshold. A sustained break below this level would signal the yuan's strongest position in months and could have wide implications for global trade, capital flows, and monetary policy. The yuan's strength is supported by China's trade surplus, narrowing interest rate differentials with the US, and improving economic indicators.
Internationally, China is expanding the yuan's footprint. The UK recently became the first foreign country to host two yuan-clearing Chinese banks, with the Bank of China's London branch approved as a new clearing hub on January 29, boosting offshore yuan trading in Europe.
