Dollar-Yuan Hits New Yearly Low Again—'China's Currency Depreciation Cycle Nears End'

(Seoul=Yonhap Infomax) Min Jae Lee – The dollar-yuan exchange rate hit a new yearly low as easing trade tensions and expectations of a U.S. rate cut fueled yuan strength.

Some analysts interpret this as a sign that the cycle of yuan depreciation orchestrated by Chinese authorities is nearing its end, raising hopes for further exchange rate reforms.

According to Caixin Global on the 25th (local time), the onshore dollar-yuan (CNY) exchange rate closed at 7.0938 yuan at 16:30, down 0.16% from the previous session.

At a similar time, the offshore dollar-yuan (CNH) rate briefly touched 7.0810, down 0.3% from the previous day. The offshore rate, which had hit an 11-month low in September, set a new yearly low within two months.

On the same day, the People's Bank of China (PBOC) set the dollar-yuan central parity rate at 7.0826 yuan, down 0.0021 yuan (0.03%) from the previous day.

The yuan's appreciation was pronounced as the U.S. dollar weakened, with the dollar index falling below the 100 mark.

Wang Ziyi, Director at Cross-Border Finance Research Institute, said, "Market sentiment is tilting toward a Fed rate cut in December, with expectations now exceeding 70%."

Signs of easing U.S.-China trade tensions also contributed to yuan strength. The White House reported that President Donald Trump and Chinese President Xi Jinping held a phone call on the evening of the 24th to discuss progress on a trade agreement and bilateral economic relations.

Improved domestic economic indicators in China and the conversion of accumulated export earnings into yuan were also cited as factors supporting the currency.

Wang added, "Export settlements and cross-border capital inflows are providing short-term demand-side support, while recent open market operations, liquidity measures, and regulatory guidance by Chinese authorities have stabilized sentiment."

Some experts view the yuan's appreciation as a notable shift, suggesting the depreciation cycle that began in 2022 may be ending.

They also noted that a prolonged period of yuan appreciation could enhance the appeal of yuan-denominated assets among global investors and provide greater scope for China to implement exchange rate reforms.

Lu Zhe, Chief Economist at Suzhou Securities, said, "The depreciation trend from 2022 to 2024 may have ended, and the yuan could be on a medium- to long-term upward trajectory."

He forecast, "Resilient export growth, the return of foreign capital to yuan assets, and a structurally weaker dollar could drive potential yuan appreciation through the end of 2025 and into 2026."

Miao Yanliang, Chief Strategist at China International Capital Corporation (CICC), commented, "The current dollar depreciation cycle presents a key window to enhance yuan flexibility. While China remains in a low interest rate environment, expanding the floating exchange rate regime could help curb short positions in carry trades."

Key Trend: The yuan has reached its strongest level in nearly a year, breaking through previous lows set in September, as market sentiment shifts toward a U.S. rate cut and trade tensions ease. Analysts highlight the end of a multi-year depreciation cycle and anticipate further reforms and appreciation potential for the yuan.

mjlee@yna.co.kr

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