Currencies February 4, 2026

BofA Lowers USD/CNY Outlook to 6.7 as Yuan Momentum Strengthens

Bank of America cites stronger exports and firmer policy signals as drivers behind recent yuan appreciation and wider FX implications

By Sofia Navarro
BofA Lowers USD/CNY Outlook to 6.7 as Yuan Momentum Strengthens

Bank of America has reduced its end-Q3 and end-Q4 forecasts for USD/CNY from 6.8 to 6.7, pointing to renewed momentum in the Chinese yuan underpinned by robust export performance and firmer policy signals. The bank outlines four themes shaping foreign exchange dynamics, highlights spillover effects to emerging market currencies, flags risks in EUR/CNY, and assesses longer-term scenarios including how yuan appreciation factors into GDP dynamics and CNH forwards pricing. Its research on CFETS trade-weights identifies four currency blocks with evolving alignments.

Key Points

  • BofA lowered its end-Q3 and end-Q4 USD/CNY forecasts from 6.8 to 6.7, citing yuan appreciation driven by robust exports and firmer policy signals.
  • The bank identifies four themes influencing FX movements; yuan strength is producing spillovers that support appreciation across emerging market currencies.
  • BofA highlights China-to-Europe export diversion as enlarging EU trade deficits and notes EUR/CNY is at a decade high, with downside risk to EUR/CNY in the near term.
  • In long-term scenarios, BofA considers yuan appreciation as a potential tool for narrowing the US-China GDP gap and is assessing how much of that is priced into CNH forwards.

Bank of America has adjusted its forecasts for the USD/CNY exchange rate, lowering its end-Q3 and end-Q4 targets to 6.7 from a prior 6.8. The revision reflects recent appreciation momentum in the Chinese yuan that the bank attributes to strong export flows and clearer, firmer policy signals.

In its analysis, the bank sets out four principal themes that it believes will guide foreign exchange movements over both short and long horizons. A prominent near-term theme is the yuan's strengthening - a dynamic that the bank says is producing spillover effects, helping to lift a range of emerging market currencies more broadly.

Bank of America also draws attention to trade shifts involving China and Europe. Analysts note that Chinese export diversion into Europe is contributing to deeper trade deficits in the euro area, and they observe that the EUR/CNY exchange rate has climbed to a decade high. Given these conditions, the bank judges that risks are skewed toward downside for EUR/CNY in the near term.

Looking further ahead, the bank examines scenarios in which continued yuan appreciation could serve as a strategic instrument in closing the GDP gap between the United States and China. In this context, analysts are probing how much of such a scenario may already be reflected in CNH forwards markets.

Bank of America's research into the evolution of China's CFETS trade-weights surfaces a pattern of four distinct currency groupings. These blocks are described as: emerging markets together with the Canadian dollar; a set of non-USD alternative currencies; a USD-dominated block that includes gold and the Swiss franc; and a shrinking USD-aligned group composed of the Singapore dollar, British pound, Japanese yen, and Korean won. The delineation of these blocks underlines shifting alignment in trade-weighted currency exposures.

The bank's revisions and thematic framework underscore how developments in China's external sector and policy stance are reverberating through currency markets, with implications for FX traders, emerging market assets, and trade balances in Europe.

Risks

  • Near-term downside risk to EUR/CNY, which could affect euro-area trade balances and FX-sensitive sectors.
  • Uncertainty over the extent to which potential long-term yuan appreciation is already priced into CNH forwards, creating ambiguity for investors and hedgers.
  • Shifts in CFETS trade-weight groupings - including a diminishing USD-aligned block - introduce uncertainty for currencies and markets tied to those trade-weight exposures.

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