The exchange rate of RMB against the US dollar rose more than 200 points, MT4.MY5 news analysis

In early trading on Thursday, the yuan rose more than 200 basis points against the U.S. dollar at one point. Although the Fed raised interest rates by 75 basis points again, the Fed chairman's speech released a dovish signal, alleviating the market's worries about the Fed's continued sharp interest rate hikes in the future, and the dollar fell back.

 

On Thursday, the central parity rate of the dollar against the yuan was reported at 6.7411, down 320 basis points from the previous trading day. After the market opened at 9:30, the exchange rate of the US dollar against the RMB once fell to 6.7357, down 212 basis points from the previous trading day, and then the decline narrowed to 12:45, and the US dollar against the RMB reported 6.7473.

 

Wang Youxin, a senior researcher at the Bank of China Research Institute, told Jiemian News that the sharp rise in the RMB exchange rate today is mainly due to the fact that the Fed did not raise interest rates more than expected this time, and Powell’s related remarks released a dovish signal.

 

"This interest rate meeting may become the turning point of the current (US) interest rate hike cycle. In order to achieve the goal of a soft landing of the economy, the Fed will follow up with more reference to economic indicators to adjust the pace of interest rate hikes," Wang Youxin said.

 

"With further downside risks to the (U.S.) economy and recession fears likely to outweigh inflationary pressures, the Fed will likely have to slow the pace of rate hikes and possibly stop raising rates around the end of the year," he said.

 

In the early morning of Thursday, Beijing time, the Federal Reserve announced that it would raise its benchmark interest rate by 75 basis points to a range of 2.25% to 2.50%, in line with market expectations. This is the fourth time this year that the United States has raised interest rates. At the same time, from June to July, the Fed raised interest rates by 150 basis points, marking the most aggressive tightening action since the 1980s.

 

In a news conference after the rate decision was announced, Federal Reserve Chairman Jerome Powell said the central bank was trying to get the tightening just right and trying to "make no mistakes." He noted that the next extraordinary rate hike will depend on economic data, and at some point a slower pace of rate hikes may be appropriate.

 

"As the stance of monetary policy tightens further, it may become appropriate to slow the pace of rate hikes as we assess how the cumulative policy adjustments affect the economy and inflation," Powell said.

 

Analysts believe that Powell's speech weakened the forward guidance and eased the market's concerns about the Fed's continued substantial interest rate hikes, and judging from the questions at the press conference, the market is now paying more attention to the risk of economic recession.

 

After Powell made the above remarks, U.S. stocks rose in the short-term, U.S. bond yields fell, and the U.S. dollar index fell, driving non-U.S. currencies to rebound.

 

Analysts pointed out that in addition to external factors, the gradual improvement of China's economic fundamentals in the second half of the year will support the RMB exchange rate.

 

Wang Youxin said that from the perspective of internal and external economic recovery, the current market worries about the recession of the European and American economies are increasing, while the fundamentals of China's economy are improving, market sentiment is stable, and economic activities such as production, consumption, investment, and industrial chains are gradually on the rise. On the right track, the endogenous power of the economy has increased, which has also brought strong support to the RMB exchange rate.

 

"In the second half of the year, with the dynamic changes in domestic and foreign economic growth and the slowdown of the Fed's tightening monetary policy, it is expected that the US dollar index will gradually fall from a high level, the RMB exchange rate will rise steadily, and cross-border capital will continue to maintain a net inflow trend," he said.

 

Wang Qing, chief macro analyst of Oriental Jincheng International Credit Rating Co., Ltd., added that although the RMB experienced a rapid depreciation against the US dollar in April and May this year, the overall RMB exchange rate is still in a strong state.

 

He pointed out that since March, driven by the Fed's sharp interest rate hikes, the US dollar index has appreciated by around 10.8%, while the RMB has only depreciated 5.8% against the US dollar during the same period, which means that the RMB has generally appreciated significantly against other non-US currencies. . According to data from the Bank for International Settlements, the RMB nominal effective exchange rate index reached 128.56 in June, up 4.95% year-on-year.

 

"Behind this, the market has strong confidence in the domestic macroeconomic and policy trends this year and the basis for the operation of the RMB exchange rate under the influence, and it is difficult for market sentiment to effectively gather in the direction of bearish RMB exchange rate." He said.

 

Wang Qing believes that although the U.S. dollar index will continue to run at a high level for a period of time, the RMB against the U.S. dollar may still face certain depreciation pressure. However, in the second half of the year, China's economy will enter a faster recovery process, and exports are expected to remain strong. Resilience, it is unlikely that the renminbi will depreciate rapidly in April and May, and the exchange rate of the renminbi against the US dollar is expected to remain between 6.6-6.8 by the end of the year.