Yuan Tao, a senior foreign exchange analyst at Dongzheng Futures, told reporters that there were three reasons for the rapid appreciation of the RMB exchange rate in the short term. First, the domestic economy is expected to improve, with a clear trend of improvement. Recently, the central bank's policy of reducing reserve requirements was officially implemented, releasing about 500 billion yuan of long-term funds, supplementing market liquidity. At the same time, the country's continuous optimization of epidemic prevention and control policies and support for the supply side of real estate enterprises have also effectively boosted market confidence. Internationally, many foreign institutions, including JPMorgan Chase, Citigroup, Bank of America and others, have continuously published research papers and are bullish on Chinese assets.
The second is that the US dollar index has weakened recently and the pressure on non US currencies has eased. Since November, the dollar index has been falling back, falling 5.02% in a single month, the biggest drop in a single month in 12 years. This is mainly because a number of economic data released in November showed that the core inflation in the United States had peaked, and the market's expectation of the Federal Reserve's slowing interest rate increase policy rose again, which led to the correction of the dollar index and the yield of US bonds.
Third, the upside down of China US forward interest margin has slowed down, reducing the pressure of capital outflow and RMB devaluation. Since November, the yield of the U.S. 10-year treasury bond has dropped from 4.05% to about 3.5%, while the yield of China's 10-year treasury bond has risen from 2.65% to above 2.9%, and the interest margin has narrowed rapidly. The market expects that the mismatch between the economic cycles of China and the United States will continue for a period of time. With the continuation of the Federal Reserve's policy of raising interest rates, the downward pressure on the American economy will intensify and change in the opposite direction to China's economic expectations, which is conducive to the appreciation of the RMB.
