The RMB exchange rate against the US dollar rebounded sharply again.
On November 11, the central parity rate of the RMB against the US dollar was reported at 7.1907, an increase of 515 points, the largest increase since May 23, 2022. On the 11th, after the spot exchange rate of RMB against the U.S. dollar rose by more than 700 points in early trading, it gained strength again in the afternoon. It appreciated to a maximum of 7.0940 during the session and appreciated by more than 1,500 points during the day.
After the offshore RMB exchange rate against the U.S. dollar, which more reflected the expectations of international investors, appreciated sharply by more than 1,000 points overnight, it resumed its upward trend in the afternoon of the 11th and also exceeded the 7.10 mark, appreciating more than 500 points from the previous trading day.
The direct cause of this rebound is that the U.S. CPI data in October was lower than expected. On November 10th, Eastern Time, the U.S. Consumer Price Index (CPI) for October was released. The U.S. CPI in October rose 7.7% year-on-year, falling below 8% again after 7 months. After the data was released, the U.S. dollar index plunged sharply in the short term, falling below the 109 mark.
Customers shop at a supermarket in Eugene, Oregon, USA. Photo by Xinhua News Agency reporter Wang Ying
Inflation fell more than expected, coupled with the Federal Reserve’s previous signal of slowing down interest rate hikes. The market expects the Federal Reserve to slow down the pace of interest rate hikes. Some people say that if the Federal Reserve does not raise interest rates violently, the U.S. dollar will not appreciate strongly. Therefore, we see that while the New York stock market is soaring, the value of the U.S. dollar has plummeted, and the euro and the renminbi have surged.
There is a big rise, but it is debatable that it is not a retaliatory rise. Judging from the trends in recent years, there is no one-to-one correspondence between the bilateral exchange rate of the RMB against the US dollar and the US dollar index. There have been situations where the US dollar has appreciated and the RMB has become stronger. After the exchange rate of RMB against the U.S. dollar “broke 7” for the first two times, as the market situation changed, the exchange rate returned to below 7 yuan, and the foreign exchange market has the ability to achieve independent balance.
Market supply and demand always play a decisive role. This is the underlying logic of the rise and fall of the RMB exchange rate.
From a medium to long-term perspective, first, China’s economic fundamentals are good, supporting a strong currency value. The economy recovered in the third quarter. Driven by investment in infrastructure, high-tech industries, and manufacturing, GDP growth was higher than that of major countries and regions such as the United States and the European Union. Second, there is a double surplus in the balance of payments and an oversupply of foreign exchange. In September, my country’s international balance of payments total trade in goods and services increased by 10%, achieving a surplus of US$57.6 billion. Third, inflation is low and the purchasing power of RMB is strong. Unlike the previous long-term quantitative easing policies implemented by the United States and the European Union, my country’s inflation rate is low and the RMB exchange rate has room for appreciation.
The repeated rises and falls also show that under the market-oriented exchange rate formation mechanism, the exchange rate point is unpredictable, two-way fluctuations are normal, and there will be no “unilateral market.” Although there are some unstable factors in the short term, the market status of the RMB will not change, and the long-term strengthening trend of the RMB will not change. my country’s continued international balance of payments surplus and huge net foreign investment assets have provided a good foundation for the RMB exchange rate. Stability provides a strong guarantee. At the same time, our country insists on implementing normal monetary policy, with sufficient policy space and rich toolbox. The trend of RMB is clear, RMB assets are safe, and the world’s recognition of RMB will continue to increase in the future.
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