Recently, at its December policy meeting, the Federal Reserve cut rates by 25 basis points to 4.5% as expected, and its hawkish stance pushed the Dollar Index above the 108 mark, reaching a temporary high. Meanwhile, the Bank of England softened its stance and did not cut rates, and the Bank of Japan delayed its rate hike, further boosting the dollar's rise. The dollar-yen surged to a five-month high of 156.39, while the euro-dollar fell to the strong support level near 1.03, as non-US currencies faced broad pressure.
Asian emerging market currencies depreciated under the strong dollar's influence, with the Malaysian ringgit and Indonesian rupiah seeing significant declines. The Bank of Thailand noted that the sharp fluctuations of the baht mainly stem from external factors, and this trend is expected to continue in the short term. The Chinese yuan remained relatively stable, with the onshore USD/CNY rate steady below 7.30, while the offshore market once broke through 7.32. Although the three main yuan indexes edged up, the tightening dollar liquidity has gradually weakened the yuan's appreciation support. Future attention is needed on the changes in foreign exchange deposit growth and trade policy uncertainties.
Global Macro and Interest Rate Dynamics
In its December policy meeting statement, the Federal Reserve reiterated its flexibility in rate adjustments and raised its economic growth and inflation expectations. This suggests that the Fed may only cut rates twice before 2025, by 50 basis points each time, reflecting a hawkish policy tone. In contrast, the Bank of England's Monetary Policy Committee voted 6:3 to keep rates unchanged, emphasizing short-term economic weakness and labor market balance, but the persistently high service inflation limited the scope for substantial rate cuts.
In the yuan market, the People's Bank of China released liquidity through reverse repurchase operations, but the domestic supply of dollar funds is tightening, reflecting a weakening pressure for yuan appreciation. This week saw a net withdrawal of 430.2 billion yuan in the open market, with some market rate fluctuations. With Trump's inauguration approaching, the yuan may face greater policy pressure in the future, requiring attention to tariff developments and capital outflow risks.
Market Outlook and Investment Strategy
Looking ahead, the global foreign exchange market will be engaged in a tug-of-war around the policy dynamics of major central banks. The Federal Reserve's hawkish stance and the policy divergence between the UK and Japan will continue to influence G7 currency trends, while Asian emerging market currencies will need to address both external risks and internal structural issues. The yuan exchange rate is expected to remain stable in the short term, but long-term pressures will gradually emerge. Investors should closely monitor policy guidance and economic data from major economies and develop flexible trading strategies to cope with market volatility.
