Multiple financial institutions expect the Chinese yuan (CNY) exchange rate to be characterized by low volatility and gradual appreciation in 2026, as the yuan briefly strengthened past the 7.0 per US dollar (USD) mark on Thursday, underscoring a broader shift in global market sentiment. 

Global financial services group ING noted that the People's Bank of China (PBOC) has clearly demonstrated both the willingness and the capacity to stabilize the exchange rate under significant market pressure. "In 2025, the PBOC showed not only its determination but also its ability to maintain currency stability amid heavy market stress," the group said, highlighting policy credibility as a key anchor for the yuan.

China's domestic brokers share a similarly constructive view. Industrial Securities said that the yuan's latest appreciation cycle may be just beginning, driven by a shift toward a more accommodative Federal Reserve stance, a narrowing China–US interest rate differential, and the gradual return of previously outflowing capital. In its assessment, the recent gains are not merely a passive response to dollar weakness, but reflect stronger internal dynamics such as capital inflows and rising foreign-exchange conversion demand.

International private banking and asset management group LGT also pointed to improving external and policy signals. The positive outcome from the China-US leaders' talks, combined with the PBOC's willingness to lower the USD/CNY fix and increased onshore FX conversion, points to scope for CNY appreciation, said the group. Meanwhile, a report from Chinese financial institution Shenwan Hongyuan attributed the move largely to proactive central bank management and changes in the external dollar environment, suggesting that policy factors have played a more decisive role than seasonal flows.

From a macro perspective, Bank of America Global Research said its 2026 China GDP growth forecast of 4.7 percent points to a stabilization in economic momentum. It expects the next March National People's Congress to outline the next five-year plan, with a stronger pivot toward consumption and advanced manufacturing. This, the bank said, should help keep China's interest rates broadly stable. At the same time, anticipated Federal Reserve rate cuts are likely to further narrow yield differentials, providing additional support for the yuan.

(With input from Reuters)