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The yuan has jumped to 6.91 per dollar, its strongest level since May 2023. This marks seven straight months of gains, the longest winning streak since 2020–2021.

Since the start of 2025, the yuan is up 5%, making it the third-best performing Asian currency since September. And it’s not by luck. China’s financial authorities are behind it, pushing banks to cut their U.S. Treasury buying and reduce exposure if they’ve loaded up too much. This sudden pullback in dollar demand is driving the rally.

At the same time, the dollar is falling apart, making it easier for the yuan to shine. The Bloomberg Dollar Spot Index has dropped 1.7% this year, after plunging 8% in 2025. That was the worst yearly showing for the dollar since 2017. Traders expect this trend to continue, especially if the Federal Reserve slashes rates deeper than markets are pricing in.

Fed rate cuts and Trump pressure weigh on the dollar

According to State Street strategist Lee Ferridge, the dollar could lose another 10% this year if the Fed turns more aggressive. He says a third rate cut in 2026 is “possible,” not just because of economic data, but because of the pressure that President Donald Trump might put on whoever replaces Jerome Powell as Fed Chair.

Ferridge told reporters at the TradeTech FX conference in Miami, “Two is a reasonable base case, but we have to accept we are going into a more uncertain period of Fed policy.” He also said if Trump pushes for cheaper borrowing, that could accelerate dollar weakness even further.

The first cut is expected around June, with most traders betting on two quarter-point reductions by the end of 2026. But if the new Fed Chair bows to White House pressure, a third could be on the table. On top of that, Ferridge added that deeper cuts lower hedging costs for foreigners investing in the U.S., which would hurt the dollar more as they hedge aggressively.

Ferridge did say the dollar might briefly bounce back 2%-3% if U.S. data surprises on the upside. But so far, momentum is still sliding. And as the dollar dips, the yuan keeps gaining ground.

Beijing cracks down on crypto to protect the yuan

China isn’t just pushing banks behind closed doors. Regulators just banned unapproved yuan-pegged stablecoins and tokenized risk-weighted assets, both from inside and outside the country. On February 6, the People’s Bank of China, along with several agencies, issued a statement warning that these crypto products could threaten the yuan’s stability if left unregulated.

The ban includes a full stop on businesses using words like “stablecoin,” “RWA,” or “cryptocurrency” in their names or scope. This is about pushing the adoption of the e-CNY, China’s state-backed central bank digital currency that’s been in the works for years. The document called it a response to “new circumstances and new challenges.”

There’s also an international layer to all this. The U.K. just became the first foreign country to host two yuan-clearing Chinese banks.

On January 29, during British Prime Minister Keir Starmer’s visit to Beijing, China’s central bank approved the Bank of China’s London branch as a new clearing hub. This boosts offshore yuan trading in Europe, with London now a major link in China’s global currency network.

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