Resilient economy key to stable RMB

The Chinese yuan has strengthened steadily against the US dollar this year, with the offshore yuan gaining over 2 percent year-to-date.

Economists attribute the increase to both external and domestic drivers. Globally, the US economy has been weighed down by high interest rates and trade policy uncertainties, weakening the dollar index. Meanwhile, domestically, China's resilient economic fundamentals, continued policy support, and more flexible exchange rate management have bolstered the renminbi.

As of 4:30 pm on Tuesday, the offshore yuan, according to Wind Info, stood at 7.1857 per US dollar, up more than 2 percent since the start of the year.

Wen Bin, chief economist at China Minsheng Bank, said, "Washington's new tax cuts and spending law, coupled with a downgrade of US sovereign credit rating, have heightened concerns over the sustainability of US fiscal policy, lending support to the yuan's appreciation against the dollar."

At home, China has continued to roll out countercyclical, growth-stabilizing measures. With relatively steady economic data, advances in technological innovation and industrial upgrading, steps to curb "involution-style" competition that help stabilize prices, and recovering risk appetite in financial markets have all provided a firmer footing for the currency, Wen said.

Duan Chao, chief macro analyst at Industrial Securities, said China's economy has shown notable resilience this year. Despite tariff-related headwinds from the United States, exports grew 7.2 percent year-on-year in the first half. He argued that China's commitment to high-quality development helps counter external uncertainties and contributes stability to global growth — a foundation for a stable yuan that is likely to persist.

Duan added that China's economic resilience has kept the yuan steadier than the dollar, while policies introduced after US President Donald Trump's return to the White House have created major uncertainties, denting confidence in holding US assets over the long term.

The US dollar closed the first half of 2025 with its steepest drop since 1973, as the dollar index, which measures the greenback against a basket of currencies of the US's key trading partners, slid about 11 percent during the first six months.

While the currency rebounded 3.2 percent in July, recovering part of its losses, Morgan Stanley Research forecast further weakness, warning of an additional 10 percent decline by the end of 2026.

The downturn was fueled by April's tariff announcements and the resulting policy and economic uncertainties, compounded by mounting concerns over growth, inflation and public debt.

With the delayed effects of tariffs on growth and jobs, coupled with ongoing policy risks, downward pressure on the dollar is expected to persist. Foreign investors have also increased hedging on currency exposure to US assets, a move Morgan Stanley said will likely deepen the dollar's slide.

In contrast, during this period, the steady performance of China's economy provided strong support for the yuan exchange rate. Accelerated cross-border capital inflows and increased holdings of yuan assets also boosted the currency, said Wang Youxin, a senior researcher at a research institute backed by Bank of China.

China's central bank released its monetary policy implementation report for the second quarter of 2025 on Friday.

The report reaffirmed the need to pursue a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. It stressed upholding the decisive role of the market in the formation of the exchange rate, enhancing the resilience of the foreign exchange market, stabilizing expectations, firmly correcting pro-cyclical behavior, addressing any conduct that disrupts market order, and guarding against the risk of exchange rate overshooting, so as to keep the yuan exchange rate basically stable at an adaptive and equilibrium level.

A research note from China Galaxy Securities pointed out that the central bank's remarks once again sent a policy signal of its commitment to maintaining basic stability in the currency market, helping guide market expectations and providing a proactive response to the potential rise in global financial market uncertainties.