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The exchange rate skyrocketed!

May 04,2024

On May 3,The offshore yuan once rose above the 7.19 barrier to a low of 7.1853 against the dollar, a new high since March.The yuan has risen against the dollar for three consecutive days.The RMB exchange rate has risen 800 points in the past seven trading days.

Good news! Before the U.S. stock market on the 3rd local time, the latest U.S. April non-agricultural employment report showed that employment growth slowed down, far below market expectations, easing inflation concerns,and bolster confidence in expectations of a Fed rate cut.Traders expect the Fed to cut interest rates early to September and possibly two cuts in 2024,It will further support the rise of the RMB exchange rate.

The fluctuation of RMB/USD exchange rate in the international foreign exchange market has always been widely concerned, among which the RMB exchange rate in the offshore market has often become one of the market focuses. The offshore RMB exchange rate against the US dollar rose above 7.19, a change that reflects the relative strength of the RMB in the foreign exchange market.

On Wednesday,The dollar index fell for days after the Federal Reserve announced that it would keep interest rates unchanged in the range of 5.25 to 5.5 percent and plans to slow its tapering plan starting in June.. CME's FedWatch instrument shows that the money marketThe probability of a cut of at least 25 basis points in September is expected to be 58%, but the probability of a rate cut in November is higher at 69%.

On May 2, local time, the dollar index fell 0.25 per cent to 105.3848, while non-US currencies rose across the line. The offshore yuan hit an intraday low of 7.2451 against the U.S. dollar in early trading in Asia,It once rose to 7.1952, and broke 7.20 for the first time since March 14, up 499 points from the intraday low,The offshore yuan rose 280 basis points against the dollar to 7.2060 throughout the day.

Latest NewsBefore the U.S. stock market on Friday, local time, the April non-farm payrolls report released by the U.S. Department of Labor showed that job growth in the U.S. slowed sharply, with 175000 new jobs, down more than 40 percent from 315000 last month and well below market expectations of 240000 new jobs. This data was lower than expected, easing the market's concerns about inflation continues to rise. The market generally reinforced expectations that the Federal Reserve may soon start cutting interest rates as the labor market cooled significantly.

affected by this,Traders have brought forward the timing of the Fed's first rate cut from November to September, and expect the Fed to cut interest rates twice in 2024, each by 25 basis points, compared with the previous expectation of only one rate cut.Will be further supported by the strengthening of the yuan.

The resilience of the RMB exchange rate remains strong.

On April 16, China released the latest economic data showing that (GDP) in the first quarter of this year increased by 5.3 per cent year-on-year and 1.6 per cent month-on-month. Affected by this, the domestic and foreign RMB exchange rates have rebounded from intraday lows, indicating that China's economic fundamentals have improved steadily, which is driving many investment institutions to copy the RMB exchange rate.

"At present, on the 7.25-7.26 front line, overseas investment institutions are more enthusiastic about bottoming out the onshore RMB exchange rate." A Hong Kong bank foreign exchange trader analysis pointed out. "It's also giving many overseas quantitative investment funds that track the upside-down of the US-China interest rate differential another theme of buying down the yuan."

In the view of the foreign exchange traders of the above-mentioned banks, the current short selling of RMB by these capitals is not strong. This is manifested in the RMB exchange rate decline is highly "consistent" with the dollar integer increase and the U. S.-China interest rate differential upside down to expand the situation, there is no obvious deviation and abnormal fluctuations.

"after all,The continued improvement in China's economic fundamentals, coupled with the fact that overseas capital is still increasing the allocation of domestic RMB government bonds, has given the RMB strong support and discouraged overseas speculative capital.A Hong Kong private equity fund manager said bluntly.

He found that although the exchange rate difference between domestic and foreign RMB has widened since April, the short selling of RMB by overseas speculative capital through cross-border arbitrage trading is obviously not as strong as in the past, and the short selling position in the offshore RMB market is also relatively weak, which is an important reason behind this,Or Overseas speculative capital on the one hand that the strong dollar may be only a "temporary phenomenon", in the Fed did not cut interest rates "loose mouth", the dollar index in the future will still be a big probability of correctionOn the other hand, it is noted that China's economic fundamentals remain stable and improving, which also makes the short selling of RMB suddenly decline.

"Although the foreign exchange market is now beginning to speculate that the Fed has a certain probability of raising interest rates further, this is not enough to drive overseas speculative capital to increase its efforts to sell the yuan short." He stressed.

Fed keeps interest rates unchanged, slowing pace of tapering from June

After two consecutive days of interest rate meetings, on May 1, local time, the U.S. Federal Reserve announced that it would maintain the target range of the federal funds rate between 5.25 and 5.5 percent and slow the pace of balance sheet reduction since June. It also said it would continue to postpone the first rate cut because of higher-than-expected inflation data. In a subsequent press conference, when talking about inflation risks, Fed Chairman Powell did not mention the possibility of raising interest rates, but said that if needed, policy will remain unchanged.

This is the sixth consecutive meeting of the Federal Reserve since September last year to keep interest rates unchanged. In a statement issued on the same day, the Federal Reserve said that although the inflation rate has eased in the past year, it is still at a high level. In recent months, the Fed has "lacked further progress" in achieving its 2 per cent inflation target ". Until there is greater confidence that the inflation rate continues to move towards the long-term target of 2%, it is "inappropriate" for the Fed to lower the target range of the federal funds rate ".

The statement said that in the past year, the risks to achieving the two goals of full employment and price stability "have become better balanced". This wording has been adjusted from the previous statement that "is moving towards a better balance.

In its latest statement, the Federal Reserve decided to continue to reduce its holdings of U.S. Treasury bonds, agency debt and agency mortgage-backed securities, but decided to slow down the pace of its reduction. Specifically, starting in June, the monthly limit on Treasury holdings will be lowered to $25 billion, while the limit on institutional debt and institutional mortgage-backed securities will remain unchanged at $35 billion. Any principal amount in excess of this cap will be reinvested in the U.

In its statement, the Federal Reserve reiterated that it will continue to pay attention to changes in the economic outlook and adjust monetary policy as needed. Fed Chairman Powell said at the press conference that due to the current strong demand in the US labor market and higher-than-expected inflation, it may be appropriate to postpone the rate cut. He also stressed that the slowdown was to ensure a more gradual adjustment of the balance sheet, while reducing pressure on money markets and avoiding financial market turmoil.

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