Fed Holds Steady as Offshore Yuan Breaks Below 6.9; Experts: Two Forces Driving the Trend

Our reporter | Zhang Shoulin Our editor | Yang Jun

On March 19, the RMB hovered around the 6.9000 mark against the US dollar. Since the beginning of this week, it has generally appreciated but then shifted back to a correction phase. Overall, since February 27, the RMB has broken out of its previous self-reinforcing appreciation trend and entered a flexible two-way fluctuation state. Notably, the offshore RMB fell below 6.9 during trading.

Recent international events have frequently occurred, causing disturbances in the RMB exchange rate and other markets. The US and Israel launched military strikes against Iran, affecting the Strait of Hormuz, which disrupted international oil and shipping markets.

Additionally, in the early hours of March 19 Beijing time, the Federal Reserve announced its interest rate decision, maintaining rates unchanged.

Recently, during the “2026 Peking University Guanghua School of Management ‘Two Sessions’ Post-Economic Situation and Policy Analysis Conference,” Tang Yao, Associate Professor at Peking University Guanghua School of Management, told the Daily Economic News that the current market forces driving RMB movements come from two aspects: on one hand, the attractiveness of RMB assets continues to increase; on the other hand, due to the US-Israel-Iran conflict, risk aversion in international financial markets has risen, boosting the US dollar’s value.

Tensions in the Middle East Trigger Increased Risk Aversion in International Financial Markets

From an international perspective, the US and Israel’s military actions against Iran are escalating. According to a statement from the Islamic Revolutionary Guard Corps of Iran on March 19, they launched the “Real Commitment-4” operation, the 63rd wave of attacks, destroying US-related oil facilities as retaliation. The statement said that the war between Iran, the US, and Israel has entered a “new phase.”

The statement also mentioned that Iran had no intention of expanding the war to oil facilities or harming the economies of friendly neighboring countries. Due to attacks on Iran’s energy infrastructure, “we have actually entered a new phase of war.” To defend Iran’s infrastructure, Iran “had to attack energy facilities related to the US and US holdings.”

According to Israeli media reports on March 18, the Israeli Air Force attacked Iran’s major natural gas facilities in Bushehr in southern Iran and prepared to strike other Iranian infrastructure. Countries like Qatar reported that some oil and gas facilities were damaged in the attacks.

The tense situation in the Middle East has led to increased risk aversion in financial markets. The recent continuous rise of the US dollar index is a clear example. On March 19, the dollar index briefly surged to 100.2955, with a monthly increase of 2.61%.

Under the rising tension, influenced by the appreciation of the US dollar, international gold prices have fallen. On March 19, the spot London gold price reached a high of $4,867.186 per ounce, down 10.36% since the beginning of the month.

In the early hours of March 19 Beijing time, the Federal Reserve announced its latest interest rate decision, keeping rates steady. The US dollar index responded with an increase but has since stabilized.

Affected by the rise of the US dollar and other factors, since February 27, the RMB’s appreciation against the dollar has entered a correction phase.

Tang Yao told reporters that recent US military actions in the Middle East have led international funds to buy US dollars as a safe haven, which has strengthened the dollar index and put pressure on other currencies and gold.

Steady Decline in Corporate and Other Entities’ Foreign Exchange Settlement Intentions

From a domestic perspective, in the months before the 2026 Spring Festival, the RMB appreciated overall against the US dollar amid fluctuations.

In response to the self-reinforcing appreciation trend of the RMB, on the morning of February 27, the People’s Bank of China announced a reduction of the forward foreign exchange risk reserve ratio from 20% to 0%.

Market trends following this policy adjustment showed that the RMB appreciation momentum was curbed. Over the past two weeks, the RMB against the dollar has experienced more flexible two-way fluctuations, with some adjustments in value.

According to foreign exchange settlement and sales data from the State Administration of Foreign Exchange, in February 2026, banks settled 14,338 billion RMB and sold 11,362 billion RMB. From January to February 2026, banks had a total settlement of 34,385 billion RMB and total sales of 25,819 billion RMB.

Li Bin, Deputy Director and spokesperson of the State Administration of Foreign Exchange, disclosed in an interview about the foreign exchange market situation in February 2026 that banks had a foreign exchange surplus of $42.8 billion, a decrease of 46% month-on-month. Since March, cross-border capital inflows and outflows have been basically balanced, and supply and demand are relatively stable. Overall, China’s foreign-related economy is developing steadily, foreign exchange market transactions remain active, and the willingness of enterprises and other entities to settle foreign exchange has slightly declined. The demand for foreign exchange purchase remains stable, and market expectations are generally steady.

Tang Yao stated that the main market forces driving RMB movements come from two aspects: on one hand, the attractiveness of RMB assets continues to increase; on the other hand, due to the US-Iran conflict, risk aversion in international financial markets has risen, boosting the US dollar’s value.

Looking ahead, how will the situation evolve? Tang Yao said it’s difficult to predict at this point. If the above factors remain stable and persistent, the RMB is likely to continue its gradual strengthening trend within the year.

On the policy level, at the recent Fourth Session of the 14th National People’s Congress, PBOC Governor Pan Gongsheng emphasized the importance of market-determined exchange rate formation, maintaining exchange rate flexibility, strengthening expectation guidance, and keeping the RMB exchange rate basically stable at a reasonable and balanced level.

Tang Yao believes that policymakers tend to prefer keeping the RMB relatively stable, avoiding excessive unilateral movements whether appreciating or depreciating.