Currency news: How will the US rate cut affect the yuan?
Stephen Jen, CEO of British hedge fund Eurizon SLJ Capital, said on August 27 local time that Chinese companies may sell $1 trillion of dollar-denominated assets as the US cuts interest rates, a move that could increase the value of the yuan by 10 percent, brokerage China reported, citing Bloomberg.
How will the US rate cut affect the renminbi?
Stephen Jen, the former head of global currency research at Morgan Stanley, is known as the author of the "dollar smile theory." He said currencies were the biggest risk at the moment but were not properly priced by the market, and the renminbi could play an important role.
"The yuan will appreciate and will probably be allowed to appreciate," said Stephen Jen, referring to the impact of the massive repatriation. "5 to 10 percent is a moderate and acceptable amount for China."
Stephen Jen said Chinese companies may have accumulated more than $2 trillion in overseas investments in recent years because these assets carry higher interest rates than yuan-denominated assets. And when the Fed cuts rates, the attractiveness of dollar assets will be eroded and could spur a $1tn "conservative" repatriation of funds as the gap between Chinese and US interest rates narges.
Stephen Jen believes that if prices continue to fall in the United States, the Federal Reserve may cut interest rates more than the market expects. This, coupled with the fact that the dollar itself is already overvalued, the US faces double deficits and the prospect of a soft landing, supports his belief that the dollar will fall. The net result is likely to be a stronger renminbi against the dollar.
Powell gives strongest hint yet of rate cut
Last week, Federal Reserve Chairman Jerome Powell gave the strongest hint yet that the U.S. central bank will cut interest rates in September. Speaking at the Federal Reserve Bank of Kansas City's annual economic conference in Jackson Hole, Wyoming, he said upside risks to inflation have diminished and downside risks to employment have increased.
Powell said, "Now is the time for policy adjustment. The direction of rate cuts is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks."
Joe Brusuelas, chief economist at RSM, called the speech an "important policy shift." Brusuelas expects that by the second half of next year, the Fed will eventually lower interest rates significantly, to between 3 percent and 3.5 percent, barring a severe recession.
Earlier, the Fed released minutes from its July 30-31 policy meeting in which a "large majority" of officials expressed support for a rate cut, citing progress in reducing inflation.
The consensus forecast was for a 25 basis point cut
The Fed is now widely expected to announce a modest quarter-point cut in its benchmark interest rate at its mid-September meeting. Joseph LaVorgna, chief economist at Sumitomo Mitsui Nikko Securities, noted that the results of the August employment report, to be released on September 6, are clearly crucial. If the report shows a second straight month of weak hiring, the Fed could more aggressively cut its benchmark interest rate by 50 basis points.
Recently, Matthew Martin, an American economist at Oxford Economics, said in an interview with Nancai reporters: "The focus of the discussion now is not whether the Federal Reserve will cut interest rates in September, but how they will cut interest rates - is it 25 basis points or 50 basis points." We are still forecasting a cut of 25 basis points rather than 50 basis points. We think the August jobs report will have a big impact on the pace of their decision making. Overall, we think the 100 basis point easing cycle expected by the market is too aggressive and expect the Fed to take a gradual approach with a 25 basis point cut in September followed by another cut in December."
The share of global payments made in RMB hit a new high this year
In July, the share of global payments in RMB exceeded 4.69% in March, hitting a new high this year.
On August 22, the Society for Worldwide Banking Financial Telecommunication (Swift) released the latest monthly report showing that in July this year, in the global payment currency ranking based on the amount of statistics, the proportion of RMB reached 4.74%, an increase of 0.13 percentage points from the previous month, continuing to maintain the status of the world's fourth largest payment currency. Compared to June, the overall volume of renminbi payments increased by 13.37 percent, while the overall volume of all currency payments increased by 10.29 percent.
A person from the cross-border business department of a joint-stock bank pointed out that this reflects the increasing use of the renminbi in global trade and investment. First, emerging market countries continue to promote the local currency settlement of cross-border trade, so that more and more countries in China's cross-border trade settlement application of RMB is expanding; Second, in July, foreign capital added a total of 228.3 billion yuan of domestic bonds, and the turnover of domestic bonds of foreign capital reached 1,956.4 billion yuan in the month, effectively boosting the demand for renminbi in cross-border investment projects.
An emerging market investment fund manager told 21 reporters that with the US Federal Reserve or interest rate cut in September, the market believes that the US dollar or will enter a new decline cycle, the future appreciation of the RMB exchange rate can be expected, and will attract more foreign capital to increase bond spread trading, further pushing up the enthusiasm of overseas funds to increase the holding of RMB bonds and the demand for RMB cross-border investment projects.
How will the US rate cut affect the renminbi?
Stephen Jen, the former head of global currency research at Morgan Stanley, is known as the author of the "dollar smile theory." He said currencies were the biggest risk at the moment but were not properly priced by the market, and the renminbi could play an important role.
"The yuan will appreciate and will probably be allowed to appreciate," said Stephen Jen, referring to the impact of the massive repatriation. "5 to 10 percent is a moderate and acceptable amount for China."
Stephen Jen said Chinese companies may have accumulated more than $2 trillion in overseas investments in recent years because these assets carry higher interest rates than yuan-denominated assets. And when the Fed cuts rates, the attractiveness of dollar assets will be eroded and could spur a $1tn "conservative" repatriation of funds as the gap between Chinese and US interest rates narges.
Stephen Jen believes that if prices continue to fall in the United States, the Federal Reserve may cut interest rates more than the market expects. This, coupled with the fact that the dollar itself is already overvalued, the US faces double deficits and the prospect of a soft landing, supports his belief that the dollar will fall. The net result is likely to be a stronger renminbi against the dollar.
Powell gives strongest hint yet of rate cut
Last week, Federal Reserve Chairman Jerome Powell gave the strongest hint yet that the U.S. central bank will cut interest rates in September. Speaking at the Federal Reserve Bank of Kansas City's annual economic conference in Jackson Hole, Wyoming, he said upside risks to inflation have diminished and downside risks to employment have increased.
Powell said, "Now is the time for policy adjustment. The direction of rate cuts is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks."
Joe Brusuelas, chief economist at RSM, called the speech an "important policy shift." Brusuelas expects that by the second half of next year, the Fed will eventually lower interest rates significantly, to between 3 percent and 3.5 percent, barring a severe recession.
Earlier, the Fed released minutes from its July 30-31 policy meeting in which a "large majority" of officials expressed support for a rate cut, citing progress in reducing inflation.
The consensus forecast was for a 25 basis point cut
The Fed is now widely expected to announce a modest quarter-point cut in its benchmark interest rate at its mid-September meeting. Joseph LaVorgna, chief economist at Sumitomo Mitsui Nikko Securities, noted that the results of the August employment report, to be released on September 6, are clearly crucial. If the report shows a second straight month of weak hiring, the Fed could more aggressively cut its benchmark interest rate by 50 basis points.
Recently, Matthew Martin, an American economist at Oxford Economics, said in an interview with Nancai reporters: "The focus of the discussion now is not whether the Federal Reserve will cut interest rates in September, but how they will cut interest rates - is it 25 basis points or 50 basis points." We are still forecasting a cut of 25 basis points rather than 50 basis points. We think the August jobs report will have a big impact on the pace of their decision making. Overall, we think the 100 basis point easing cycle expected by the market is too aggressive and expect the Fed to take a gradual approach with a 25 basis point cut in September followed by another cut in December."
The share of global payments made in RMB hit a new high this year
In July, the share of global payments in RMB exceeded 4.69% in March, hitting a new high this year.
On August 22, the Society for Worldwide Banking Financial Telecommunication (Swift) released the latest monthly report showing that in July this year, in the global payment currency ranking based on the amount of statistics, the proportion of RMB reached 4.74%, an increase of 0.13 percentage points from the previous month, continuing to maintain the status of the world's fourth largest payment currency. Compared to June, the overall volume of renminbi payments increased by 13.37 percent, while the overall volume of all currency payments increased by 10.29 percent.
A person from the cross-border business department of a joint-stock bank pointed out that this reflects the increasing use of the renminbi in global trade and investment. First, emerging market countries continue to promote the local currency settlement of cross-border trade, so that more and more countries in China's cross-border trade settlement application of RMB is expanding; Second, in July, foreign capital added a total of 228.3 billion yuan of domestic bonds, and the turnover of domestic bonds of foreign capital reached 1,956.4 billion yuan in the month, effectively boosting the demand for renminbi in cross-border investment projects.
An emerging market investment fund manager told 21 reporters that with the US Federal Reserve or interest rate cut in September, the market believes that the US dollar or will enter a new decline cycle, the future appreciation of the RMB exchange rate can be expected, and will attract more foreign capital to increase bond spread trading, further pushing up the enthusiasm of overseas funds to increase the holding of RMB bonds and the demand for RMB cross-border investment projects.
