On the afternoon of July 25, the RMB exchange rate against the US dollar rebounded significantly.

As of press time, the offshore yuan rose more than 600 points to 7.2097 against the dollar during the day, and the onshore yuan rose more than 500 points to 7.2144.

According to the Shanghai Securities News, Zhao Qingming, vice president of Huiguan Research Institute, said that since yesterday evening, the renminbi exchange rate has shown signs of strengthening, especially the offshore and onshore renminbi exchange rate has been inverted. The strengthening of the yen is one of the factors driving the strengthening of the renminbi exchange rate.

Zhang Ming, deputy director of the Institute of Finance of the Chinese Academy of Social Sciences, recently issued a document saying that the trend of the RMB exchange rate in the second half of the year need not be too pessimistic. Considering the weakening of the US macro data in June, and the latest statement of the Federal Reserve Chairman Powell, the probability of the Fed’s first interest rate cut of 25 basis points in September this year is rising, and it is expected to cut 50 basis points within the year; Moreover, a Fed rate cut would lead to a mild weakening of the 10-year US Treasury yield and the US dollar index, with the 10-year US Treasury yield likely to fall to around 4.0% by the end of 2024 and the US dollar index likely to fall to around 100.

From the perspective of the US dollar index, in the past month, the US dollar index as a whole has fluctuated and fallen, falling about 1.7% since late June, as of press release to 104.25.

So will the pressure on the renminbi exchange rate disappear?

According to the Securities Times, analysts believe that from the current situation, it still depends on the strength of the dollar and the yen to a large extent. The recent correction in the dollar index, though modest, has come against the backdrop of a sharp rise in both the renminbi and the yen.

Swaps pricing on Thursday showed a 58 per cent chance the boj would raise rates by 15 basis points by July 31, up from around 0.29 per cent last week. If Japan raises rates, the gap with the US will remain at about 5 percentage points. Judging from the current sentiment and data, the yen’s appreciation may last until the end of this month. In terms of the correlation between the yuan and the yen, the yuan may also follow up to this point.

It is worth noting that in the first half of 2024, the RMB played the role of “stability anchor” for Asian currencies. According to Bank of China Securities, the central parity rate of the renminbi against the Japanese yen, the Korean won, the Thai baht, the Malaysian ringgit and the Singapore dollar strengthened by 12.2 per cent, 6.3 per cent, 6.3 per cent, 2.1 per cent and 1.9 per cent respectively. In addition, on July 19, when conveying the spirit of the Third Plenary Session of the 20th Central Committee, the People’s Bank of China stressed that it should improve the managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies, enhance the flexibility of the exchange rate, and keep the RMB exchange rate basically stable at a reasonable and balanced level. It can be seen that the market-oriented reform direction of the RMB exchange rate and the short-term intention of the central bank to stabilize the exchange rate policy have not changed fundamentally.