RMB and Euro exchange rate outlook: Where will it head by 2026?

2025 RMB Exchange Rate Review: From Pressure to Recovery

Since 2025, the performance of the RMB against the US dollar has been volatile. At the beginning of the year, USD/RMB fluctuated between 7.1 and 7.3, with a cumulative appreciation of 2.40% for the year. The offshore market experienced even greater fluctuations, moving between 7.1 and 7.4, with an appreciation of 2.80%.

A turning point occurred in November. Influenced by improved China-US trade relations and rising expectations of Federal Reserve rate cuts, the RMB appreciated against the US dollar, reaching a low of 7.0765, the highest in nearly a year. This change signaled a clear improvement in market sentiment.

Looking back at the year’s performance, the RMB was under pressure in the first half, with the offshore market briefly breaking through the 7.40 level and even hitting a new low since the “8.11 FX reform” in 2015. However, in the second half, as trade negotiations advanced steadily and the US dollar index weakened, the RMB gradually stabilized and began to rebound.

The Last Five Years Cycle: From Appreciation to Depreciation and Rebound

2020 V-shaped reversal: At the start of 2020, RMB was between 6.9 and 7.0, impacted by US-China trade tensions, depreciating to 7.18 in May. As China effectively controlled the pandemic and economic recovery led the way, coupled with the Fed’s near-zero interest rates, the interest rate differential drove the RMB to appreciate to around 6.50 by year-end, a total increase of about 6%.

2021 stability period: Strong exports, a robust economy, and prudent central bank policies kept the US dollar index low. USD/RMB fluctuated narrowly between 6.35 and 6.58, with an average of 6.45 for the year, maintaining relative strength.

2022 turning point: Aggressive Fed rate hikes pushed the US dollar index higher, causing RMB to depreciate from 6.35 to over 7.25, with a depreciation of about 8%, the largest in recent years. Meanwhile, China’s pandemic policies hampered economic growth, and a real estate crisis worsened.

2023-2024 continued pressure: In 2023, the US dollar index remained volatile at high levels, with RMB fluctuating between 6.83 and 7.35. In 2024, the situation slightly improved, with a weakening dollar and easing RMB pressure. Fiscal stimulus boosted confidence, but volatility increased.

Outlook for 2026: A Possible Appreciation Cycle Has Begun

The market generally believes that the depreciation cycle starting in 2022 may have ended, and the RMB is expected to enter a new phase of medium- to long-term appreciation.

Three major factors support this bullish outlook:

Export resilience continues: China’s export growth remains strong, underpinning demand for the RMB.

Reallocation of foreign investment: International investors are gradually returning to RMB assets, increasing allocation enthusiasm.

Structural weakness of the US dollar: The Fed’s rate cut cycle is underway, and the US dollar index faces medium-term downward pressure.

Top international investment banks have optimistic forecasts for 2026:

• Deutsche Bank expects the RMB to appreciate against the dollar to 7.0 by the end of 2025, and further to 6.7 by the end of 2026, indicating a clear appreciation trend.

• Morgan Stanley predicts the US dollar will weaken continuously over the next two years, with the dollar index falling to 89 by 2026, corresponding to an RMB/USD rate of about 7.05.

• Goldman Sachs states in its strategic report that the real effective exchange rate (REER) of the RMB is undervalued by 12% relative to the ten-year average, with a 15% undervaluation against the dollar. Based on trade negotiations and current undervaluation, they expect the RMB to appreciate to 7.0 against the dollar within 12 months. Goldman Sachs believes China’s strong export performance will support the RMB, and the government prefers to use other policy tools to boost the economy rather than currency depreciation.

Key Influencing Factors Analysis

US dollar index fluctuations: In the first five months of 2025, the dollar index fell by 9%, marking the worst start to a year in history. The Fed’s rate cut cycle is imminent, and market expectations suggest the dollar may weaken further over the next 12 months, potentially leading to continued RMB appreciation.

China-US relations: Trade negotiations remain uncertain. If tensions ease and tariffs are reduced, the RMB will be supported; if tensions escalate, depreciation pressure will persist. This is a key variable for exchange rate trends.

Fed policy stance: Monetary policy is crucial for the dollar. If inflation exceeds expectations, the Fed may slow rate cuts, supporting the dollar; if the economy slows significantly, accelerated rate cuts will weaken the dollar.

Chinese central bank policies: The People’s Bank of China tends to adopt easing measures to support economic recovery. Rate cuts or reserve requirement ratio reductions will provide short-term pressure on the RMB, but if combined with strong fiscal stimulus to stabilize the economy, the RMB will be supported in the long term.

RMB internationalization: Increased use of RMB in global trade settlements and expansion of currency swap agreements will support long-term stability, though in the short term, the dollar’s reserve status remains difficult to challenge.

How to Judge RMB Exchange Rate Trends?

Monitor monetary policy signals: Central bank rate cuts or reserve requirement ratio adjustments directly influence currency supply and demand, affecting the exchange rate. Tightening policies → RMB strength; easing policies → RMB pressure. The 2014 case of six consecutive rate cuts and significant RRR reductions illustrates the long-term impact.

Pay attention to economic data: Stable economic growth attracts foreign investment, boosting RMB demand. Key indicators include quarterly GDP, monthly PMI (official data focus on large enterprises, Caixin on small and medium), CPI inflation, and fixed asset investment.

Observe USD index movements: US dollar trends are driven by Fed and ECB monetary policies. For example, in 2017, the Eurozone’s better-than-expected recovery and ECB’s tightening signals caused the dollar index to fall 15% over the year, with RMB also trending downward.

Interpret official exchange rate guidance: Since May 2017, the RMB’s central parity rate has been adjusted to a “closing price + a basket of currencies + counter-cyclical factor,” enhancing official guidance. While this mechanism influences short-term rates, the medium- and long-term trend remains determined by fundamentals.

Is It a Good Time to Allocate RMB Now?

Investment timing assessment: In the short term, the RMB is expected to remain relatively strong, with limited fluctuations and an inverse correlation to the dollar. Rapid appreciation below 7.0 before the end of 2025 is unlikely.

Given the current situation, allocating in RMB-related currency pairs offers profit opportunities, but timing is key. Focus on the USD index trend, signals from the RMB central parity, and China’s stabilizing growth policies.

Ways to Invest in RMB

Commercial bank foreign exchange accounts: Investors can open foreign exchange accounts at local or international banks for trading and investment.

Foreign exchange trading platforms: Partner with forex brokers to trade on their platforms. Most support two-way trading (bullish and bearish) and leverage tools to amplify gains. Traders should set leverage according to risk tolerance to avoid losses.

Securities firms: Some securities companies offer forex trading services, allowing investors to buy and sell foreign currencies on designated platforms.

Futures exchanges: Engage in forex investment through futures markets by opening accounts for forex futures trading.

Summary

The RMB exchange rate has entered a new cycle. With China’s monetary policy gradually easing, the US dollar index structurally weakening, and China-US relations improving, the foundation for RMB appreciation is strengthening. Based on similar historical cycles, this trend could last for a decade, despite short-term fluctuations caused by dollar movements and other events.

As long as investors monitor the three core variables—US dollar trends, central bank policies, and economic data—they can significantly improve their chances of profiting in the forex market. The forex market is driven mainly by macroeconomic data, with transparent information disclosures worldwide, large trading volumes, and support for two-way trading, making it relatively fair and accessible for ordinary investors.