Author丨Chen Zhi.
Editor丨Zhang Mingxin.
Source丨Visual China.
In the early morning of December 14, Beijing timeThe Federal Reserve kept interest rates unchanged as the market expected. But to the surprise of the market, the Fed suddenly released a strong signal of interest rate cuts.
Fed Chair Jerome Powell said that while the Fed does not rule out further rate hikes at the appropriate time, he believes rates may have reached or are close to peaking. In addition, at this interest rate policy meeting, the Fed discussed the timing of interest rate cuts.
The Fed's latest dot plot shows that 16 of the 19 Feds** who offered interest rates at this interest rate policy meeting expect interest rates to fall to 5 next year0% or less. Of these, five expect interest rates at 475% to 50%, estimated at 25 basis points per rate cut, equivalent to two rate cuts next year;Six people are expected in 450% to 485%, which is equivalent to three rate cuts;The four expect the interest rate to be at 425% to 450%, which is equivalent to four rate cuts;One even expects interest rates to be lower than 40%。
"This made the market suddenly realize that the Fed may cut interest rates much more than the market expects in the future. ”A Wall Street hedging manager revealed to the 21st Century Business Herald reporter. Previously, Wall Street was clearly divided on whether the Fed would cut interest rates sharply next year - given the sticky core inflation rate in the United States and the resilience of the U.S. economy, some investment institutions believe that the Fed will only cut interest rates once or twice next year.
As a result, the foreign exchange market suddenly fluctuated violently - as of 15:00 on December 14, the dollar index plummeted from 104 to 1026. In the onshore market, the RMB exchange rate against the US dollar rose to 71351, up 463 basis points from the previous trading dayIn the offshore market, the RMB exchange rate against the US dollar rose to 71407, an overnight gain of 555 basis pointsIt was the biggest one-day gain in the last 3 months.
Today, the foreign exchange market is repricing the dollar against the yuan. The above-mentioned Wall Street hedge ** manager noted. As the market suddenly anticipates that the Federal Reserve may cut interest rates aggressively, more and more Wall Street investment institutions believe that the dollar index will fall below the 100 integer mark early next year, and correspondingly, the RMB exchange rate will regain 71 integer mark, even in the case of China's economic fundamentals continue to improveThere is a high probability of rising above the "7" integer mark.
A Hong Kong bank foreign exchange trader told the 21st Century Business Herald reporter that on the morning of December 14, the enthusiasm of the Hong Kong foreign exchange market to buy RMB increased significantly. Compared with quantitative investments** who technically bought the CNH exchange rate due to the lower US dollar index, more and more macroeconomic hedges** are actively increasing their positions in the offshore RMB because they realize that with the Fed may cut interest rates aggressively, a large amount of capital will return to emerging markets in the future, helping the offshore RMB exchange rate increase to further expand.
In his view, affected by the Federal Reserve's aggressive interest rate cuts, the current sentiment of overseas speculative capital shorting the RMB has fallen into a trough, because they realize that it is difficult for them to speculate on the depreciation of the RMB with the help of factors such as the continued divergence of monetary policies between China and the United States and the widening of the inversion of the interest rate gap between China and the United States. Correspondingly, from December 14th,Some overseas speculative capital has successively reduced its short positions in offshore renminbi to avoid becoming the target of sniping on the rising tide of renminbi buying.
The dollar was "priced".
The 21st Century Business Herald reporter learned that the Fed's interest rate cut signal significantly exceeded market expectations.
The above-mentioned Wall Street hedge manager told the 21st Century Business Herald reporter that a relatively mainstream view on Wall Street was that the Federal Reserve may cut interest rates twice next year, after all, the Fed still needs to maintain the current high interest rate for a long time to promote the core inflation rate in the United States lower.
But after the Fed released the dot plot, these market expectations were completely upended. He told reporters. Many Wall Street investment institutions suddenly realized that they underestimated the Fed's determination to cut interest rates aggressivelyThey quickly stepped up their efforts to short the dollar.
The data showed that the dollar index plummeted from 104 to 102 in anticipation of an aggressive interest rate cut by the Federal ReserveAround 6, it indicates that financial markets are repricing the dollar index in response to the Fed's aggressive interest rate cut signal.
A foreign exchange broker told the 21st Century Business Herald reporter that the main force of the short selling of the US dollar is the quantitative investment of programmatic investment, because after the Federal Reserve will cut interest rates at least three times next year into the investment model, the programmatic trading mechanism quickly issued a large number of trading orders for short selling the dollar. In contrast, subjective investment hedges** appear to be a step slower because they believe that the dot plot may not be a true reflection of the Fed's attitude towards rate cuts – they believe the Fed will still cut rates cautiously due to the still-high US core inflation rate and the continued strength of the job market. However, the sharp pullback in US Treasury yields on the evening of December 13 is dragging the US dollar index lower, forcing them to follow up on reducing their long USD positions to mitigate the magnitude of investment losses.
According to the data, under the influence of the Fed's aggressive interest rate cut expectations, the yield on the 2-year US Treasury bond, which is highly sensitive to the Fed's monetary policy, fell by more than 30 basis points in a single day on the evening of December 13, the largest one-day decline since the collapse of Silicon Valley Bank in March this yearAs of 15:00 on December 14, the yield on the 10-year US Treasury note fell to 3Around 964%, it fell below the 4% round figure mark, further weakening the attractiveness of US dollar assets and dragging down the US dollar index for a long time**.
In his view, the current market pricing of the dollar index is also full of divergence, more and more Wall Street investment institutions have begun to **execute** put dollar index options below 100, but there are also some hedges** to carry out counterparty transactions with this, because they believe that the dollar index will not fall below 100 in the short term.
Behind this, these hedges** believe that the Fed will most likely not consider cutting interest rates for the first time until the second half of next year.
The timing of the Fed's first rate cut is likely to have a greater impact on financial markets than the Fed's last rate hike. Because once the Fed pulls the trigger for a rate cut, it means that the Fed confirms that the US economy is in a recession and begins to react to it. But this means that the focus of global capital will shift to the official recession of the US economy, and the new pricing of risk assets such as US equities will be launched. The forex broker noted.
The RMB exchange rate has stabilized and strengthened, and the foundation has been further solidified
Affected by the Fed's aggressive interest rate cut expectations and the sharp fall of the US dollar, the RMB exchange rate strengthened again.
As of 15:00 on December 14, the exchange rate of RMB against the US dollar in the onshore market rose to 71351, a one-day increase of 463 basis points, and the exchange rate of the RMB against the US dollar in the offshore market once recorded the largest one-day increase in the past three months.
In the view of the above-mentioned Hong Kong bank foreign exchange traders, compared with the sharp rise in the RMB exchange rate, the foreign exchange market on December 14 was another significant changeIt is the overseas speculative capital that was keen on short-selling RMB arbitrage in the past to leave the market one after another. The reason for this is that the Fed's aggressive interest rate cut signal not only narrowed the inversion of the interest rate differential between China and the United States, but also ended the phase of monetary policy differentiation between China and the United States, making it difficult for them to use the above two themes to speculate on the depreciation of the RMB to make profits.
An emerging market investment manager told the 21st Century Business Herald reporter that the market's repricing of the dollar index also affected the sentiment of these overseas speculative capitals to short offshore RMB and other emerging market currencies. This is because they fear that the market will further lower the pricing of the dollar index, causing them to suffer larger losses in their existing short positions. In this case, more and more overseas speculative capital chooses to leave the market early to avoid risks.
In his view, the current offshore RMB exchange rate pricing has not yet fully reflected the sharp narrowing of the inversion of the interest rate differential between China and the United States. As of 15 o'clock on December 14, the inversion of the interest rate differential between China and the United States has narrowed sharply to 129 basis points, the lowest value since July, which has made many emerging market investors** have increased their offshore RMB longs, waiting for the value of the RMB exchange rate to return, and even some emerging market investors** based on the Fed's aggressive interest rate cut signal, that the offshore RMB exchange rate is expected to quickly recover the "7" integer mark.
A number of industry insiders pointed outAs the Fed releases interest rate cut signals to drive more and more capital to return to emerging markets, the probability of the RMB exchange rate continuing to stabilize and rebound in the future is much higher than the downside risk. Behind this, if China's economic fundamentals continue to improve, it will undoubtedly attract more capital returning to emerging markets to flow into China's financial market, driving the RMB exchange rate to further strengthen.
sfc
Editor of this issue: Liu Xueying, Xi, Song Jiayao.
21 Jun recommended reading
Major Fed Decision: Pause!RMB, ** soared.
After the Fed's pivot, Wall Street began to frantically "sweep the goods".
The scale has plummeted!The stock of US dollar bonds of Chinese enterprises has shrunk.