Renminbi and Euro exchange rate trend forecast: 2026 investment opportunity analysis

2025 RMB Exchange Rate: From Depreciation to Appreciation Turning Point

Since 2025, the RMB exchange rate has experienced a significant shift. The USD against RMB fluctuated bidirectionally within the 7.1 to 7.3 range, appreciating a total of 2.40% for the year, ending the previous three years of depreciation. The offshore market performed even stronger, with USD against offshore RMB appreciating by 2.80%, reflecting a reassessment of the RMB outlook by international capital.

On November 26, driven by improved China-U.S. trade relations and rising expectations of Federal Reserve rate cuts, the RMB appreciated against the USD to below 7.08, reaching a low of 7.0765, a near one-year high. This turning point marks the market’s shift from pessimistic expectations to optimistic sentiment.

Reviewing the volatility trajectory of 2025, the main reasons for RMB pressure in the first half include global tariff policy uncertainties and a strengthening dollar index, with offshore RMB temporarily breaking through 7.40. However, in the second half, as China-U.S. negotiations advanced and the dollar index retreated, the RMB gradually rebounded. Major non-U.S. currencies like the euro also appreciated simultaneously, forming a relatively strong RMB position.

Historical Patterns of RMB against USD and EUR Trends

The exchange rate movements over the past five years clearly demonstrate the cyclical nature of the RMB:

2020 Cycle: Early in the year, hovering around 6.9-7.0, impacted by the pandemic and China-U.S. trade frictions, it depreciated to 7.18 in May. But with effective pandemic control and economic recovery in China, coupled with the Fed’s near-zero interest rates while China maintained prudent policies, the RMB rebounded strongly to 6.50 by year-end, appreciating about 6% for the year.

2021 Stability Period: China’s exports remained strong, the economy improved, and the central bank maintained prudent policies. The dollar index hovered low, with USD/RMB fluctuating narrowly between 6.35 and 6.58, averaging around 6.45 for the year.

2022 Peak of Depreciation: The Fed’s aggressive rate hikes pushed the dollar index higher, with USD/RMB rising from 6.35 to over 7.25, depreciating about 8% for the year. Meanwhile, strict pandemic controls and a real estate crisis dragged down the economy, dampening market confidence.

2023-2024 Adjustment Period: In 2023, the exchange rate fluctuated between 6.83 and 7.35. In 2024, as the dollar weakened and China’s fiscal stimulus policies took effect, RMB pressure eased.

International Institutions’ Forecasts for RMB in 2026

The market generally believes that the depreciation cycle starting in 2022 has ended, and the RMB is expected to enter a new phase of medium- to long-term appreciation. Several international investment banks have issued optimistic forecasts:

Deutsche Bank indicates that the strengthening of the RMB against the USD may signal the start of a long-term appreciation cycle. They project it will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Morgan Stanley expects a moderate appreciation trend for the RMB, judging that the USD will continue to weaken over the next two years. The firm forecasts that by 2026, the dollar index could fall back to 89, with the RMB/USD exchange rate potentially reaching around 7.05.

Goldman Sachs’ global FX strategy head highlighted in a May report that the real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, with a 15% undervaluation against the USD. Based on progress in China-U.S. trade negotiations, Goldman Sachs expects the RMB to appreciate to 7.0 against the USD within the next 12 months, emphasizing that strong Chinese export performance will support the RMB.

Three Major Factors Driving RMB Appreciation

Resilience of exports continues to be released: Despite global economic uncertainties, China’s manufacturing remains competitive, with export growth showing unexpected stability.

Reallocation of foreign capital into RMB assets: As RMB appreciation expectations strengthen and China’s economic policies optimize, overseas investors reassess the attractiveness of RMB assets, leading to continuous inflows that boost demand for RMB.

Structural weakness of the dollar index: The Fed’s rate cut cycle has begun, reducing the appeal of the dollar as a safe haven, and a long-term downward pressure on the dollar index has been established.

Core Variables Affecting RMB against USD and EUR Exchange Rates

Dollar Index Fluctuations: In the first five months of 2025, the dollar index fell by 9%, marking the worst start to the year in history. The upcoming Fed rate cut cycle suggests further dollar depreciation, implying that Asian currencies, including the RMB, will continue to appreciate.

China-U.S. Trade Relations: Despite recent consensus, tariffs and trade tensions remain key variables influencing exchange rates. Easing negotiations favor the RMB, while escalating tensions exert depreciation pressure.

Fed Policy Orientation: Signals of rate cuts emerged in late 2024, but the magnitude of cuts in 2025 depends on inflation data, employment performance, and policy decisions. Persistent high inflation will slow rate cuts, supporting the dollar; economic slowdown will accelerate cuts, weakening the dollar.

PBOC Operations: Monetary policy leaning towards easing supports economic recovery, with rate cuts and reserve requirement ratio reductions releasing liquidity. If easing policies align with fiscal stimulus, the RMB will be supported in the long term.

RMB Internationalization: Increasing use of RMB in global trade settlements, expansion of currency swap agreements, and long-term stability benefits. While the USD’s reserve currency status remains difficult to shake in the short term, the trend is positive.

How Investors Can Assess RMB Exchange Rate Trends

Monitor Central Bank Policy Signals: The People’s Bank of China’s monetary policy directly impacts RMB supply. Easing policies (rate cuts, reserve ratio reductions) typically exert downward pressure on the RMB, while tightening supports appreciation. Studying the “counter-cyclical factor” adjustments in the central parity rate can reveal official guidance.

Track Chinese Economic Data:

• Quarterly GDP growth reflects macroeconomic health
• PMI (Purchasing Managers’ Index) released monthly, with official versions focusing on large enterprises and Caixin covering small and medium enterprises
• CPI data measures inflation; high inflation may trigger policy tightening
• Fixed asset investment indicates economic vitality, released monthly by the National Bureau of Statistics

Strong economic data attract foreign investment inflows, increasing demand for RMB and pushing up the exchange rate.

Observe USD Index Trends: The USD index reflects the dollar’s strength relative to other major currencies. Policy differences between the Fed and the European Central Bank directly influence USD movements. In 2017, the Eurozone’s stronger recovery and ECB’s tightening signals caused the dollar index to fall 15% for the year, with USD/RMB closely correlated during that period.

Monitor Official Exchange Rate Policies: Since reform and opening up, the RMB has undergone multiple exchange rate management reforms. In May 2017, the central parity rate model was adjusted to include a “counter-cyclical factor” to mitigate market procyclicality. Understanding this mechanism helps in short-term trend analysis, but the medium- to long-term direction remains dictated by the broader currency market.

Pathways for Investing in RMB-Related Currency Pairs

Bank Channels: Investors can open foreign exchange accounts at local commercial banks or international banks for FX trading and investment.

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

Futures Markets: Opening accounts on futures exchanges enables FX futures trading, allowing flexible risk management.

Advantages of FX Trading Mechanisms: Many FX platforms support both long and short positions, enabling profit from price increases and decreases with correct trend judgment. Leverage trading is also available, allowing users to gain larger market exposure with less capital. However, leverage amplifies risks, so proper risk management is essential.

Most platforms also provide tools like take-profit, stop-loss, trailing stops, and negative balance protection to help investors control risks.

Conclusion

As China enters a cycle of monetary easing, the USD/RMB exchange rate is showing a clear medium-term trend. According to historical patterns, cycles driven by policy can last around ten years, with short- and medium-term fluctuations caused by USD movements and external events.

If investors can accurately grasp the key factors—central bank policies, economic data, USD index, and international trade relations—they can significantly improve their chances of profiting from this appreciation cycle.

Compared to stock markets and other investment avenues, the forex market is primarily driven by macro factors, with transparent and fair economic data releases from various countries, large trading volumes, and support for both long and short positions, making it relatively fair and full of opportunities for individual investors. Seizing the medium-term appreciation trend of the RMB is a crucial consideration for current investment strategies.