The Resilience of the Chinese Yuan Amidst a Strong US Dollar
Recently, uncertainty surrounding U.S. trade policy persists, and Federal Reserve Chair Jerome Powell downplayed the likelihood of a rate cut in September during his press conference. Coupled with U.S. economic data exceeding expectations, the market's anticipation of further rate cuts by the Fed this year has significantly cooled. Nevertheless, the Chinese yuan's exchange rate has not experienced large fluctuations, instead maintaining a narrow range of movement, appearing more stable than other major non-U.S. currencies.
Analysts point out that this trend indicates the market does not have strong expectations for the yuan to appreciate, while also showing a lack of significant depreciation pressure. Overall, the yuan has demonstrated relative stability against the backdrop of a strengthening U.S. dollar index.
Multilateral Exchange Rate Index Rebounds
In July, the Chinese yuan's multilateral exchange rate index ended its previous six consecutive declines. According to official data, the CFETS RMB Index rose by 1.5%, the BIS currency basket index increased by 1.8%, and the SDR currency basket index rebounded by 1.5%. This indicates an overall improvement in the yuan's performance against a basket of currencies.
However, extending the timeline to the first seven months of the year, the three major indices still recorded cumulative declines of 3% to over 4%. Experts believe this "phase correction" has not altered the overall mild weakening trend of the yuan within the year. On a positive note, the passive appreciation of the exchange rate has not significantly weakened export competitiveness.
Steady Cross-Border Capital Flows
Data from the State Administration of Foreign Exchange shows that in July 2025, banks settled 1.67 trillion RMB and sold 1.507 trillion RMB, resulting in a certain surplus. From January to July, the cumulative data indicates that the scale of foreign exchange settlements and sales remained basically balanced. Industry insiders interpret this as an indication that China's cross-border capital flows were in a moderately stable state, with no significant pressure due to external environmental volatility.
Market participants believe that the balance in foreign exchange settlement and sales to some extent alleviated external depreciation pressure on the yuan and provided support for the exchange rate to operate within a reasonable range.
Widening Gap Between Central Parity and Market Exchange Rates
From the perspective of the "three prices" of the yuan exchange rate, July's central parity rate strengthened for three consecutive months, while the onshore spot exchange rate slightly declined with a monthly drop of 0.4%. The onshore rate at the end of the month adjusted to around 7.19, indicating relatively cautious market sentiment.
Notably, the average daily deviation between the central parity and the spot rate widened from 0.1% in the previous month to 0.3%, reaching a three-month high. Meanwhile, there was some divergence in the trading prices of onshore and offshore yuan, with the average daily exchange difference shifting from negative to positive, suggesting overseas investors are leaning towards a stronger pricing.
Volatility Likely to be Constrained by External Environment
Looking forward, whether the yuan can maintain stability will still depend on the external macro environment. The direction of the Fed's monetary policy, U.S. trade policy movements, and the recovery pace of major global economies will all be key variables affecting the yuan's trajectory.
Analysts generally believe that in the short term, the yuan lacks momentum for sustained appreciation, but with stable cross-border capital flows and domestic fundamentals providing support, it lacks conditions for significant depreciation as well. The yuan is expected to continue two-way fluctuations within the current range, and market participants need to pay more attention to external risks and policy signals.
