Recently, I’ve been watching the RMB exchange rate trends and found some quite interesting changes. Looking at the outlook for 2025, the depreciation cycle of the RMB against the US dollar has indeed eased, with an appreciation of 2.4% for the whole year, breaking the previous three-year depreciation trend. By May this year, the USD to RMB exchange rate had already fallen below 7.08, even briefly touching 7.0765, hitting a nearly one-year high.

Reviewing the past few years’ forecasts and actual movements of the USD to RMB exchange rate, you’ll find that market predictions have gradually become more accurate. The depreciation in 2022 was really fierce, jumping from 6.35 directly above 7.25, mainly due to aggressive Federal Reserve rate hikes pushing up the dollar, coupled with domestic economic pressures. But in 2023 and 2024, as China-US relations eased and the dollar index weakened, the RMB started to rebound.

The logic behind this appreciation is actually quite clear. First, China’s export performance has remained steady, providing fundamental support for the RMB. Second, foreign capital is reallocating into RMB assets, and market sentiment is recovering. Third, the dollar index shifted from strength to weakness, which was a key turning point. I noticed that Deutsche Bank predicted the RMB would rise to 7.0 at that time, and Morgan Stanley also believed the dollar would continue to weaken; these forecasts now seem largely fulfilled.

Regarding the future trend of the USD to RMB exchange rate, I think it’s important to focus on a few variables. One is the Federal Reserve’s pace of interest rate cuts; if rate cuts accelerate, the dollar will continue to be under pressure. Two is the stability of China-US trade relations, which directly affects market risk appetite. Three is the People’s Bank of China’s policy stance; easing policies put downward pressure on the RMB, but if they can help stabilize the economy, it’s ultimately beneficial in the long run.

From a historical perspective, the core drivers of RMB exchange rate movements are threefold: central bank monetary policy, economic data performance, and the dollar index. When the central bank signals easing, the RMB usually depreciates; when economic data is strong, foreign capital inflows increase, and the RMB appreciates; the dollar index directly reflects the relative strength of the two currencies. The 2014 period when the central bank repeatedly cut interest rates and reserve requirements saw the USD/RMB rate rise from 6 to over 7.4, which clearly illustrates this point.

The current question is, what do forecasts for the USD to RMB exchange rate look like? My view is that in the short term, the RMB may remain relatively strong, but the appreciation potential is limited. The main reason is that the domestic economy is still in recovery, with pressure on the real estate sector, and the central bank needs to maintain ample liquidity. But in the medium to long term, if the dollar continues to weaken and China’s economy stabilizes, the RMB could enter a new round of appreciation.