Do you remember that in December 2023, when the dollar index fell below the 100 mark, the yuan rose to 7 against the dollar?When it is below 0, there is a cheer in the market? At that time, many believed that the dollar had come to an end and that the renminbi would usher in a wave of sustained appreciation**. However, it did not turn out as expected, and as soon as 2024 began, the dollar began a wave of strong **, and the yuan fell back to 72 nearby. What's going on here? Is the dollar's downward path really over? How much room is there for the renminbi to appreciate?
The dollar's growth was mainly supported by the resilience of the US economy and the hawkish stance of the Federal Reserve. In December 2023, the United States released a series of unexpected economic data, including employment, consumption, manufacturing and services, etc., showing that the U.S. economy still maintains a strong recovery momentum under the impact of the new crown epidemic.
This has made the market more optimistic about the outlook for the US economy and the market's expectations for the Fed's monetary policy. Markets are starting to believe that the Fed may end its $120 billion monthly asset purchase program early and start raising interest rates in the second half of 2024. This expectation has increased the dollar's safe-haven demand and yield advantage, which has boosted the dollar's growth.
The decline in the renminbi was mainly affected by the narrowing of the interest rate gap between China and the United States and the adjustment demand of the renminbi. Due to the strong performance of the U.S. economy and the hawkish stance of the Federal Reserve, U.S. Treasury yields have appeared**, while Chinese Treasury yields have been relatively stable, leading to a narrowing of the U.S.-China interest rate differential. The interest rate differential between China and the United States is an important factor affecting the RMB exchange rate, and the narrowing of the interest rate differential means that the attractiveness of the RMB has weakened and the pressure on capital outflows has increased, thus putting pressure on the RMB to depreciate.
On the other hand, the renminbi's appreciation in 2023 has been too large, exceeding market expectations and the fundamentals of China's economy, resulting in an overvaluation of the renminbi. This kind of excessive valuation is not conducive to China's export competitiveness and economic balance, nor is it conducive to the internationalization process of the renminbi. Therefore, the renminbi needs to adjust to a certain extent in order to restore its reasonable exchange rate level.
Although the US dollar and the yuan have reversed to a certain extent in early 2024, this does not mean that the downward path of the US dollar is over, nor does it mean that the basis for the appreciation of the yuan has disappeared. In the long run, the dollar is still facing structural problems such as the U.S. fiscal deficit, debt levels, and inflationary pressures, which will limit the dollar's space and may even trigger a crisis in the dollar.
The renminbi still has favorable factors such as the steady growth of China's economy, the abundance of foreign exchange reserves, the opening of the financial market, and the reform of the exchange rate system, which will support the basis for the appreciation of the renminbi and promote the internationalization of the renminbi. Therefore, the trend of the market outlook is still the downward trend of the US dollar and the upward trend of the RMB, but in the short term, there may be some fluctuations and adjustments.
The exchange rate trend of the US dollar and the RMB is not only related to the economy and finance of the two countries, but also related to the world's investment and investment.