On Christmas Day, the RMB against the US dollar experienced a strong breakout. The offshore RMB (CNH) to USD exchange rate briefly broke through the key psychological threshold of 7.0, marking the first time since 2024. Meanwhile, the onshore RMB (CNY) also surged to around 7.01, hitting a new high since September 2024. The central parity rate, which serves as the pricing benchmark, was raised by 79 basis points to 7.0392 in a single day, with the appreciation reaching its highest level since August 27, 2024.

This wave of appreciation didn't happen overnight. Over the past month, the RMB has been strengthening steadily, and this time it just erupted in a concentrated burst. How did it rise? The external US dollar is falling, and the domestic economy is holding up. The US dollar index (DXY) has recently declined sharply, providing room for the RMB to appreciate. Domestically, China's economic resilience and attractiveness support the exchange rate, coupled with the seasonal foreign exchange settlement demand from enterprises at year-end. The dual forces have pushed the RMB exchange rate to a new high.

What about the Federal Reserve? According to CME's "Federal Reserve Watch" tool, the market expects an 84.5% probability that the Fed will keep interest rates unchanged in January next year. This "hawkish" expectation continues to depress the dollar, externally supporting the RMB exchange rate.

However, rapid appreciation also comes with costs. The large short-term gains are building up the potential for reverse volatility. It is widely expected that the RMB will appreciate modestly in 2026, but whether it can stabilize above 7.0 depends on whether internal and external favorable factors can continue to resonate. The key point is that market participants need to realize that volatility in the forex market may significantly increase, and two-way fluctuations will become the norm. Breaking through 7.0 is just the beginning; the real test for traders begins afterward.