Key Highlights of the Financial Markets Week: RMB against USD exchange rate breaks through psychological barrier, precious metals hit record highs

Global Market Holiday Closures Lead to Noticeable Drop in Trading Activity

Due to the Christmas holiday, major global exchanges suspended trading this week, resulting in a significant decline in market participation. The US stock market was closed all day on December 25th for Christmas and resumed trading on the 26th. The Hong Kong Stock Exchange also closed for two days simultaneously. In Europe, major exchanges in London, Frankfurt, and Paris were closed for Christmas and continued to be closed on Boxing Day. In the Asia-Pacific region, Australia and Singapore also entered holiday mode according to local customs. Under such market conditions, trading volume has generally shrunk.

Renminbi Breaks Through 7-Level Barrier Against US Dollar, Year-End Settlement Demand Strong

The most watched is the RMB against the USD. On December 25th, offshore RMB/USD exchange rate first broke through the 7.0 psychological barrier, reaching a high of 6.9960 during the trading day, the strongest level since September 2024. At the same time, onshore RMB/USD also fell to 7.0051, creating a new low since May 2023.

Market analysts point out that this RMB appreciation is mainly driven by two factors: first, the concentrated release of year-end settlement demand from enterprises and institutions; second, the lack of rebound momentum in the US dollar. Traders generally report a noticeable increase in market settlement orders, coupled with a weak external US dollar, which has accelerated the RMB’s appreciation trend against the USD. Industry insiders expect that in the short term, the RMB will continue to approach the 7-level mark, with the specific pace depending on the policy guidance of major state-owned banks.

Central Bank Policy Signals Show Tendency for RMB Appreciation, Goldman Sachs Analyzes the Central Bank’s Intentions

Bank of America appears to intend for the RMB to gradually appreciate. Goldman Sachs’ latest research report provides an in-depth interpretation of recent changes in the People’s Bank of China’s (PBOC) statements. Over the past few months, the PBOC has alternated between the keywords “resilience” and “flexibility,” implying the central bank’s true intentions in managing the RMB exchange rate.

According to Goldman Sachs economist Xinquan Chen, the minutes of the Monetary Policy Committee meeting in Q3, released in September, emphasized “enhancing exchange rate resilience,” during a period when the RMB/USD experienced relatively rapid appreciation from August to September, with a significant increase in settlement proportions for export companies. By November, as the spot rate stabilized around 7.10, the PBOC shifted to stating “maintaining exchange rate flexibility,” indicating a relatively tolerant attitude toward further RMB appreciation.

However, after the RMB accelerated again in the past month, the Q4 MPC minutes reverted to the “exchange rate resilience” wording, suggesting the PBOC intends to slow the appreciation pace to avoid market volatility caused by rapid gains. Goldman Sachs’ forecast for the RMB/USD exchange rate indicates levels of 6.95, 6.90, and 6.85 at 3, 6, and 12 months respectively. Additionally, Goldman Sachs expects the PBOC to cut reserve requirements by 50 basis points and policy rates by 10 basis points in Q1, with another 10 basis point rate cut in Q3.

Precious Metals Hit Record Highs, Gold and Silver Rise Together

The precious metals market continues its strong momentum. On December 26th, gold prices briefly surged past $4,500, reaching a high of $4,504, setting a new record. Silver performed even better, rising to $73.67, also a historic high.

The sustained rise in precious metals reflects market concerns over the global economic outlook and expectations of US dollar depreciation. As central banks’ policies shift, safe-haven funds continue to flow into precious metals markets.

Fed Rate Cut Expectations Take Shape, US Treasury Yields Face Downward Pressure

BofA provides forward-looking predictions for Federal Reserve policies in 2026. The bank believes the Fed will implement rate cuts in June and July next year, gradually improving the overall borrowing environment. BofA forecasts the 10-year US Treasury yield will fall back to the 4%–4.25% range by the end of the year, with the possibility of further declines. While this interest rate environment is somewhat more accommodative than 2024–2025, it is still far from the ultra-low rates that previously drove significant increases in real estate and stock markets.

Bank of Japan Governor Signals Rate Hike, Core Inflation Near Target

Bank of Japan Governor Ueda Kazuo recently delivered a speech providing key information on Japan’s monetary policy direction. He pointed out that Japan’s core inflation is gradually accelerating and steadily approaching the 2% target, and the central bank is prepared to continue raising interest rates.

Ueda stated that unless the economy suffers a major negative shock, Japan’s labor market will remain tight, exerting sustained upward pressure on wages. This is due to irreversible structural changes in the market, especially the continuous decline of the working-age population. He further noted that companies are passing on rising labor and raw material costs to consumers across food, goods, and services sectors. This indicates Japan is forming a virtuous cycle of rising wages and inflation.

Ueda emphasized that, given that real interest rates remain extremely low, if the economic and price trends develop as expected, the central bank will continue to raise interest rates accordingly. Adjusting monetary policy support will enable the BOJ to achieve its 2% inflation target smoothly and promote long-term economic growth.

Japan’s New Fiscal Year Budget Hits Record High, Debt Dependency Controlled

Japanese Prime Minister Sanae Sato briefed the ruling coalition leaders on the 2026 budget plan. The new fiscal year budget totals approximately 122.3 trillion yen, an increase of about 6.3% from this year’s 115.2 trillion yen, setting a historical record for initial budgets.

Despite the record-high budget size, the Japanese government remains committed to fiscal discipline. The issuance of new government bonds is controlled at 29.6 trillion yen, the second consecutive year below 30 trillion yen. The debt dependency ratio is projected to decrease from 24.9% in the initial budget of FY2025 to 24.2%, the first time below 30% in 27 years. Sato stated that this budget draft balances fiscal discipline with economic growth and ensures long-term fiscal sustainability. The budget draft will be submitted to the Diet for review early next year. Following this news, the yield on 40-year Japanese government bonds fell by 7 basis points to 3.62%, the lowest since November 17th.

Global Semiconductor Industry Enters Trillion-Dollar Era, Leading Companies Outlook Bright

BofA’s semiconductor research team issued an optimistic outlook for the industry. Analyst Vivek Arya said that AI development remains in the mid-stage of a long-term structural shift, with overall industry trends still upward, led by leading companies with clear competitive advantages.

BofA predicts global semiconductor sales could grow by 30% in 2026, surpassing the $1 trillion milestone for the first time. Arya emphasized that companies with high-margin structures and strong market positions will continue to be the focus of investors. BofA named six highly attractive companies in semiconductors and AI: NVIDIA, Broadcom, Lam Research, KLA, AMD, and Cadence Design Systems, considering them the most promising targets for 2026.

US Stock Market Gains May Slow, Analysts Lower Next Year’s Targets

The market’s ability to sustain the strong performance of 2024 remains a key focus. CFRA Chief Investment Strategist Sam Stovall believes that for US stocks to achieve double-digit gains again, all market drivers must operate at full speed. Based on current conditions, Stovall sets the S&P 500 target for the end of 2026 at 7,400 points, about 7% higher than current levels.

However, Stovall also admits that, although stocks may continue to rise next year, negative factors are increasing, and the overall environment is far from as ideal as the past year.

NVIDIA and Groq Sign Technology Licensing Agreement to Strengthen Inference Chip Deployment

The collaboration between chip giant NVIDIA and AI chip startup Groq has attracted market attention. Earlier reports suggested NVIDIA would acquire Groq for $20 billion in cash, but NVIDIA later denied the acquisition plan, stating instead that they had reached a technology licensing agreement with Groq. Under the agreement, NVIDIA is granted a license to use Groq’s chip technology and will hire Groq’s CEO Simon Edwards.

Groq stated that the company will continue to operate independently, and its cloud business will also proceed as usual. Founders Jonathan Ross, President Sunny Madra, and other key engineering team members will join NVIDIA. This arrangement appears closer to a selective talent and technology integration rather than a full acquisition.

In its September funding round, Groq raised $750 million, valuing the company at over $6.9 billion, more than doubling from $2.8 billion in August last year. Groq’s core focus is on the “inference” domain, i.e., the responsiveness of trained AI models to user requests. While NVIDIA dominates in AI model training, it faces more intense competition in inference, which is a key reason for this deeper cooperation with Groq.