The Yuan Is Outperforming Every Asian Peer in 2025
Something unusual is happening in Asian currency markets. The Chinese yuan has climbed against both the US dollar and the euro this year, making it the strongest-performing Asian currency of 2025 so far — and it has done this while the interest rate environment should, by conventional logic, be pulling capital in the opposite direction.
That conventional logic runs like this: when US yields rise relative to Chinese yields, the dollar becomes more attractive to investors seeking return, and USD/CNY should move higher — meaning a weaker yuan. That relationship has historically had real pull. Right now, it isn’t working.
The Iran conflict has pushed US yields higher in recent weeks, widening the yield spread between the United States and China still further. USD/CNY has continued to trend lower anyway.
Why the Rate Differential Isn’t Winning This Time
Nordea analyst Kristian Nummelin has flagged the disconnect directly. The US-China rate differential remains an acknowledged driver of USD/CNY, but the yuan’s appreciation pressure has proven persistent enough to override it — at least for now. The daily fixings set by the People’s Bank of China are the clearest signal of where this is heading. Those fixings, published each morning before onshore trading opens, act as an anchor for where the currency trades through the session. They carry significant weight because the onshore yuan is only permitted to move within a 2% band around that fixing level on any given day.
The fixings have not been pushing back against yuan strength. That tells you something specific about the PBoC’s current posture: a stronger yuan is, at minimum, tolerable, and possibly preferred.
This is not a passive stance. The PBoC has a full toolkit — verbal guidance, fixing adjustments, reserve requirement ratios on foreign exchange deposits — and it is choosing not to deploy it against appreciation. For a central bank that spent years carefully managing depreciation pressure after 2015, that restraint is meaningful.
A Large Current Account Surplus as Foundation
Nordea’s analysis points to China’s substantial current account surplus as one of the structural forces supporting yuan appreciation. A persistent current account surplus means China is consistently earning more foreign currency from exports and services than it is spending on imports and external obligations. That creates a steady underlying bid for the yuan as foreign earnings are converted back.
China’s export sector has remained active through 2025 despite the pressures of an evolving trade environment. That export resilience keeps the current account surplus wide and feeds the currency’s underlying demand.
What makes the current setup particularly interesting is that the yuan is strengthening through external headwinds — elevated US yields, trade friction uncertainty, and shifting global risk appetite — rather than in spite of benign conditions. The fact that USD/CNY trends lower through all of that suggests the forces driving yuan demand are not fragile.
Nordea expects gradual appreciation versus the dollar to continue, with policy tolerance from the PBoC supporting that trajectory rather than obstructing it.
What “Gradual Appreciation” Actually Means in Practice
Gradual is the operative word here, and it matters for anyone watching this pair. The PBoC does not allow sharp, disorderly moves in either direction. The 2% daily band constraint, combined with the fixing mechanism, means that even when appreciation pressure is genuine and persistent, it tends to translate into slow, controlled movement rather than rapid repricing.
That makes the yuan’s trajectory look different from, say, the Japanese yen’s bouts of sharp volatility. USD/CNY moves are typically measured in tenths of a percent on most trading days. The appreciation Nordea is describing, though meaningful in directional terms, will not show up as a dramatic spike on a short-term chart.
For currency traders, this creates a specific kind of positioning question. The trend signal is there, the policy backdrop is permissive, and the structural support — current account surplus — is durable. But the pace of movement is constrained by design, which compresses the short-term payoff of any trade that bets on faster appreciation.
The Policy Calculation Behind a Stronger Yuan
The PBoC’s apparent comfort with yuan strength reflects a set of calculations that go beyond the exchange rate itself. A stronger yuan reduces the cost of imported goods, which helps manage inflationary pressure in consumer goods and commodity inputs. It also signals monetary credibility and financial stability at a time when China’s policymakers have an interest in projecting economic confidence.
There is also the matter of capital flows and financial market development. A currency that appreciates attracts inflows into Chinese bonds and equities, which supports Beijing’s broader goal of internationalizing the yuan and deepening participation in Chinese financial markets.
None of this means the PBoC will allow unlimited appreciation. If USD/CNY were to drop sharply and compress Chinese export competitiveness meaningfully, the calculus would change. Exporters with thin margins depend on exchange rate stability, and a rapid strengthening move would draw complaints from sectors that have already faced pressure from global demand shifts.
The word “gradual” in Nordea’s view is likely not accidental. It reflects the window within which the PBoC appears comfortable — enough appreciation to deliver the benefits listed above, not so much that it destabilizes the export sector or requires a disruptive policy reversal later.
Dollar Positioning and the Broader USD Context
The yuan’s performance does not exist in isolation from what’s happening to the dollar more broadly. The greenback has faced headwinds in 2025 tied to fiscal uncertainty, shifting Federal Reserve rate expectations, and periodic risk-off flows that lift competing assets. Yuan appreciation against the dollar is partly yuan-specific and partly a reflection of dollar weakness more broadly.
Against the euro, the yuan has also gained, which is a different test. EUR/CNY moving in the yuan’s favor while USD/CNY also moves lower points toward yuan-specific demand rather than purely dollar weakness driving the picture.
Nummelin’s observation covers both pairs, and the dual outperformance matters for reading the signal correctly. If the yuan were only rising against the dollar, it could be dismissed as a dollar story. Rising against both the dollar and the euro suggests something more fundamental about yuan demand.
Watching the Daily Fixing for Direction
For anyone tracking this currency pair, the PBoC’s daily fixing remains the clearest leading indicator of policy intent. When the fixing is set consistently below market expectations — meaning a stronger yuan anchor than traders anticipated — it signals that the central bank is actively facilitating appreciation rather than merely tolerating it.
When fixings track closer to or slightly weaker than market estimates, that’s the early sign of a shift in policy tolerance. So far in 2025, the fixing pattern has supported the yuan’s gradual grind stronger.
The current account surplus provides the structural floor. The PBoC’s permissive fixings provide the policy ceiling. Between the two, Nordea sees room for continued, measured yuan appreciation — and the data so far hasn’t disrupted that view.
USD/CNY was trading near multi-month lows as of early June 2025, with the yuan at its strongest levels against the dollar since late 2024.
This article is for general informational purposes only and does not constitute financial or investment advice. Exchange rates, central bank policies, and market conditions change frequently. Figures cited reflect conditions as of publication. Consult qualified financial professionals before making trading or investment decisions.
