Goldman Sachs has designated the Chinese yuan as one of its most confident foreign exchange forecasts for 2026. In an analyst note dated December 10, 2025, Teresa Alves outlined the firm’s view that the yuan remains significantly undervalued, underpinning expectations for robust appreciation. This forecast emphasizes persistent structural economic drivers and offers investors strategic insight as currency markets adjust amid shifting global economic trends.

Yuan’s Undervaluation and Structural Fundamentals

Goldman Sachs relies on two proprietary valuation frameworks: GSDEER and GSFEER. The weighted average undervaluation across these models stands near 25%, with the GSDEER model estimating a fair value just below 5.00 yuan per U.S. dollar. This reflects approximately a 30% undervaluation against current exchange rates. Alves highlights that since the COVID-19 pandemic, the yuan’s fair value benchmark has declined due to China’s persistently low inflation compared to the U.S. and its comparatively higher productivity.

The GSDEER model projects that even with ongoing appreciation, the yuan will remain undervalued by close to 19% through 2035. Meanwhile, the GSFEER, which assesses real trade-weighted values and current account metrics, suggests about a 12% undervaluation aligned with China’s current account surplus being well above historical norms. This surplus is expected to widen on the back of solid export growth amid subdued domestic consumption, thereby intensifying pressure for further currency appreciation.

Policy and Market Implications

Alves addresses the concern that yuan strengthening may threaten China’s export competitiveness. She counters that the yuan’s steep undervaluation means appreciation would still leave it in relatively inexpensive territory. Additionally, China’s closed capital account and the naturally strong current account surplus create structural upward pressure on the yuan.

Drawing on historical parallels, Alves references “China Shock 1.0” following the 2005 yuan revaluation as an example of how currency strength was managed without disrupting export momentum. She notes that as China’s share of global trade expands, yuan appreciation functions as a natural counterbalance to external economic shifts.

The analyst flags risks including potential softness in domestic demand and export performance, as well as the influence of government policy over currency movements. However, she points to 2025’s evidence of stronger fixing levels and favorable returns on long yuan positions as supportive trends.

Analyst Scenarios
Goldman Sachs presents a base-case forecast of continuing yuan appreciation alongside a maintained undervaluation. Alternative scenarios include a lower current account norm or a larger surplus, which would intensify expected currency adjustment.

The forecast underlines Goldman Sachs’s broader FX strategy of focusing on currencies with sustained fundamental advantages and structural undervaluation — positioning the yuan as a central focus for investors in the year ahead.

The yuan’s estimated 25% undervaluation with a fair value near 5.00 per dollar, combined with projected appreciation, cements it as one of Goldman’s highest-conviction FX forecasts for 2026. These structural factors and model-driven insights supply critical guidance for investors navigating global currency markets going forward.