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Who will win the endgame of the currency war, the yuan or the dollar? This is a matter of great concern. Recently, the renminbi saw a wave of ** on the first trading day of the new year, with a maximum decline of 400 points, showing that the road to appreciation of the renminbi is not all smooth sailing. At the same time, the sudden collapse of US bonds also brought surprises to investors. U.S. Treasury yields across maturities are generally **, with the yield on 10-year U.S. Treasury bonds surpassing 39%, while the yield on the 30-year Treasury note reached 4075%。This has made investors more cautious and have been selling. It is worth noting that the Fed has not made any recent decision on interest rate changes, so the US Treasury bond is mainly affected by psychological games. At present, the market generally ** the Fed will cut interest rates in March, and the expectation of a Fed rate cut has dealt a big blow to the dollar. While the Fed has yet to cut interest rates, the U.S. dollar index has already done something. However, when the Fed confirms its plan to cut interest rates, the dollar index is likely to be relatively stable or even **. After all, the exchange rate of the US dollar is mainly supported by interest rates, while the exchange rate of the renminbi is mainly driven by economic development.
Our economic data shows that China's economic expansion is gaining momentum. The latest Caixin PMI data once again exceeded 50 and increased by 01 percentage point, which indicates that the growth momentum of China's economy is increasing. In addition, economic data show that consumption already contributes more than 80% to gross domestic product (GDP) growth. This data shows that consumption is becoming the main driving force of China's economy, which plays a positive role in supporting the growth of the RMB exchange rate. Thus, it is foreseeable that in 2024, the exchange rate of the yuan will grow further, and although fluctuations may occur in the process, the general trend is in a positive direction.
At the same time, the risk of US debt has increased further. Foreign investors holding U.S. bonds not only face the risks of the bonds themselves, but also bear exchange rate losses. At present, the proportion of U.S. bonds held by overseas investors has been less than 1 4, and more than 70% of the large buyers of U.S. bonds are domestic funds, including hedges**, the Federal Reserve, local departments at all levels, and ordinary American households. This holding structure may be frustrating for U.S. officials. Originally, the purpose of issuing U.S. bonds was to sell them overseas, but the opposite of what was expected happened: overseas funds continued to sell U.S. bonds, while domestic funds continued to take over. Once the U.S. Treasury crashes, those investors who hold U.S. Treasuries will face significant risks.
To sum up, it is expected that in 2024, with the continuous growth of China's economy and the further improvement of the exchange rate of the RMB, the RMB will occupy an advantageous position in the currency war. However, for the US, uncertainty in the bond market has increased risks, which has put pressure on local investors. In the endgame of the currency war, the future winner will depend on the adjustment of monetary policy and the change of economic strength of each country. Who will emerge from this war remains to be seen.
Summary: In 2024, the renminbi will continue to appreciate, and the risk of U.S. bonds will become more prominent. China's economy and consumption's contribution to GDP continues to increase, which is the main factor driving the growth of the RMB exchange rate. In contrast, the U.S. bond market is facing external and internal pressures, which create uncertainty for the dollar. However, in the endgame of the currency war, the outcome will depend on the evolution of countries' monetary policies and economic strength. In this process, we need to pay close attention to various economic data and policy adjustments, as well as changes in the global economic environment, to better grasp the future market trend.
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