End-of-year currency market upheaval: the RMB stabilizes above the 6-character mark, precious metals continue to rise to new historical highs

As the year comes to a close, the global financial markets are experiencing a wave of intense volatility. The offshore renminbi against the US dollar has become a focal point, reaching a high of 6.9960 intraday on Thursday (December 25), returning to the “6” level for the first time since September 2024. Meanwhile, gold and silver also performed remarkably, with gold surging to $4,504 and silver breaking through the $73 mark, both hitting record highs.

Renminbi Appreciation Accelerates, Central Bank Sends Strong Signals

The robust performance of the renminbi against the US dollar is driven by multiple factors. End-of-year demand for foreign exchange conversions has become a key catalyst, coupled with a lack of upward momentum in the external US dollar, jointly pushing the renminbi’s appreciation. The USD/CNY also fell to 7.0051, hitting a new low since May 2023.

Market participants generally believe that this appreciation trend may continue in the short term, with the renminbi expected to further approach the psychological 7.0 level. A trader from a Chinese state-owned bank stated outright that the market consensus is bullish, given the abundant foreign exchange conversions and the weak external dollar. The future pace of exchange rate movements will largely depend on the stance of major state-owned banks.

Goldman Sachs’ latest analysis reveals subtle shifts in the central bank’s policy signals. The bank’s economists noted that over the past few months, the People’s Bank of China (PBOC) has oscillated between statements emphasizing “resilience” and “flexibility.” This pattern hints that the central bank favors supporting the renminbi’s appreciation while avoiding rapid gains that could cause market imbalance. Goldman Sachs forecasts the USD/CNY exchange rate will gradually weaken, reaching levels of 6.95, 6.90, and 6.85 at 3, 6, and 12 months respectively. The bank also expects the PBOC to cut reserve requirements by 50 basis points and lower interest rates by 10 basis points in the first quarter.

Divergent Outlooks for Fed and Bank of Japan Policies

Looking ahead to 2026, Bank of America expects the Federal Reserve to cut interest rates twice, in June and July. The bank also predicts the 10-year US Treasury yield will fall back to a range of 4% to 4.25% by year-end, with the possibility of further declines. This suggests a more easing lending environment compared to 2024 and 2025, though unlikely to return to the ultra-low interest rate era of the past.

In contrast, Bank of Japan Governor Ueda Kazuo recently expressed an opposite policy stance. In a speech to the Japan Business Federation, he reiterated that Japan’s core inflation is gradually accelerating and steadily approaching the BOJ’s 2% target, and that the bank is prepared to continue raising interest rates. Ueda pointed out that structural labor market tightness is difficult to reverse, and with wage growth, companies are passing on costs across various sectors. Japan has thus formed a mechanism where wages and inflation rise in tandem. Given that real interest rates remain very low, the BOJ will continue to raise rates based on economic data and improvements.

Japan’s Fiscal Budget Hits Record High, Reliance on Debt Reduction

Japan’s Prime Minister Fumio Kishida disclosed that the new fiscal year’s budget starting April 2026 will total approximately 122.3 trillion yen, up about 6.3% from this fiscal year’s 115.2 trillion yen, setting a new record for initial budgets. Despite the record size, new government bond issuance will be limited to 29.6 trillion yen, marking the second consecutive year below the 30 trillion yen threshold.

More notably, the debt dependency ratio has improved. The budget plan reduces the debt dependency ratio from an initial estimate of 24.9% in FY2025 to 24.2%, the first time below 30% in 27 years. Kishida emphasized that this budget balances fiscal discipline with economic growth, ensuring fiscal sustainability. Following the announcement, the yield on Japan’s 40-year government bonds fell by 7 basis points to 3.62%, the lowest since November 17.

Semiconductor Industry Reaches Trillion-Dollar Milestone

The global semiconductor market outlook is optimistic, supported by several investment banks. Bank of America semiconductor analyst Vivek Arya stated that AI development is in the midst of a decade-long structural transformation, with the overall industry trend continuing upward led by leading companies with competitive advantages. The bank forecasts global semiconductor sales will grow 30% by 2026, reaching the significant milestone of over $1 trillion for the first time.

BofA highlights six companies—Nvidia, Broadcom, Lam Research, KLA, AMD, and Cadence Design Systems—as the most confident investment targets for 2026. The bank specifically notes that companies with high gross margins and strong market positions will remain core to capital deployment.

However, CFRA Chief Investment Strategist Sam Stovall remains cautious about the US stock outlook. He projects the S&P 500 will reach 7,400 points by the end of 2026, about 7% higher than current levels. He admits that for US stocks to achieve double-digit gains again, all market engines need to run at full throttle. While the market may still rise next year, increasing headwinds suggest it may not replicate the strong years of the past.

Nvidia and Groq Announce Licensing Agreement

Significant developments in the chip sector. Nvidia has reached a licensing agreement with AI chip startup Groq, allowing Nvidia to use Groq’s chip technology. Under the agreement, Groq’s CEO Simon Edwards will join Nvidia, along with founders Jonathan Ross, President Sunny Madra, and other engineering team members. Groq will continue to operate as an independent company, with its cloud business also remaining active.

Groq completed a $750 million funding round in September, valuing the company at $6.9 billion, more than doubling from $2.8 billion in August last year. The company focuses on “inference,” which involves responding to user requests with trained AI models. While Nvidia dominates the AI model training market, it faces fierce competition in inference. This partnership reflects Nvidia’s accelerated deployment in this area.

Global Markets Close for Holidays, Reducing Trading Activity

It is worth noting that the Christmas holiday has led to decreased activity in major markets worldwide. US markets were closed all day on December 25 (Christmas Day) and resumed full trading on December 26 (Friday). Hong Kong markets also entered holiday mode, closed all day on December 25-26. Major European exchanges—London, Frankfurt, Paris—were closed on December 25 and remained closed on December 26 for the holiday. Markets in Australia, Singapore, and other Asia-Pacific regions also observed local holiday customs, resulting in a significant drop in global trading activity.