Translation in English: A plunge of 950 points! Is the Chinese yuan restarting a
Dramatic Shifts in Currency Exchange!
On Monday of this week, the Chinese yuan appreciated by 136 points against the US dollar. However, starting from Tuesday, the yuan's exchange rate suddenly turned downward, and it has been falling for four consecutive trading days.
So far, the offshore exchange rate of the yuan against the US dollar has dropped by 950 points, breaking through several levels from the high of 6.8596 on Monday to the current 6.9530.
After a significant increase for three consecutive months in November, December, and January, the yuan's exchange rate has accumulated a decline of nearly two thousand points in February this year.
Is the yuan set to face another round of depreciation?
01, Global Recognition of the Yuan
In fact, during this period, there has been a succession of very favorable news for the enhancement of the international status of the yuan.
A few days ago, Russia once again confirmed that it will gradually liquidate its euro assets in the National Wealth Fund this year and will continue to buy yuan assets. In the future, the foreign currency assets in the country's wealth fund will be held in yuan, while non-currency assets will primarily be in gold.
Advertisement
The recognition and support for the yuan in Middle Eastern oil-producing countries are also continuously increasing. In December last year, the Gulf countries confirmed that they will use the yuan for settlement in their oil and gas trade with China in the coming years. Subsequently, Saudi Arabia completed its first yuan settlement transaction.
Just the other day, good news came from Iraq, where it was announced that the yuan will be widely used in future trade between China and Iraq.And just a short while ago, in late January, South American countries were planning to introduce a unified currency for the South American region during their meetings, which can also be seen as indirect support for the Chinese yuan.
Direct support, on the other hand, comes from Brazil and Argentina, the two largest economies in South America. Argentina announced the expansion of the yuan swap agreement, while Brazil declared the establishment of a yuan clearing bank.
Undoubtedly, these are all positive news at the national level for the continuous elevation of the yuan's status.
02, Reasons for the Decline
So why has the exchange rate of the yuan recently experienced a decline?
In fact, it is related to the unexpected strengthening of the US dollar index in the recent period. Previously, the US dollar index had almost broken below the 100 mark, but now it has suddenly risen again, returning below the 105 mark.
The rise and fall of the US dollar index has a certain relationship with interest rate hikes, but the more important influencing factor comes from expectations.
Previously, although the Federal Reserve was still raising interest rates significantly, the US dollar index was falling. However, since the beginning of this year, the market began to anticipate that the Federal Reserve would adopt a more moderate stance, thus generating a strong expectation for the devaluation of the US dollar, leading to the decline of the US dollar index.
But the unexpected market data showed that the United States has a significant risk of rebounding inflation, and the US job market remains relatively tight. To avoid a decade-long inflation similar to that of the 1970s, the Federal Reserve had to release hawkish messages again, emphasizing that it will continue to raise interest rates in the future, and the terminal interest rate may be raised above 5.5%.
This unexpected turn led to a significant surge in the US dollar index, even though the Federal Reserve only intended to raise interest rates by 25 basis points.03, Overweight China
However, it now appears that the depreciation of the Chinese yuan is an overreaction.
Quite simply, as global capital continuously buys Chinese assets, the yuan will naturally continue to rise.
BlackRock has pointed out that it will upgrade the rating of Chinese stocks and will increase its overweight position in Chinese assets. This is the latest declaration from the largest asset management institution on Wall Street.
Goldman Sachs has also raised its forecast for China's economic growth rate, believing that China's GDP will rise strongly by more than 6.5% in 2023.
In addition, an increasing amount of international capital is continuously buying Chinese assets in the bond and stock markets.
Therefore, we can infer that after the Federal Reserve's interest rate hike in March is confirmed, the yuan will welcome a greater appreciation.
Post Comment