On December 18, the Federal Reserve announced a 25 basis point rate cut and hinted that the pace of rate cuts would slow down next year. The US dollar strengthened, with onshore Renminbi falling below 7.29 and offshore Renminbi briefly dropping below 7.3, marking more than a year’s new lows.
Following the Federal Reserve’s rate cut announcement, the US dollar index received strong support, breaking through the 108 mark to reach a two-year high. Meanwhile, the Renminbi exchange rate continued to weaken.
On December 19, the onshore Renminbi (CNY) fell below 7.29 to a low of 7.2996 and closed at 7.2992; the offshore Renminbi opened at 7.324, then continued to decline, briefly falling below 7.3 to a low of 7.3264, both hitting new lows not seen since November 2023. Earlier on December 3, the offshore and onshore Renminbi hit new lows since November 2023.
The official midpoint rate set on the 19th was 7.1911, down 31 points from the 18th, also hitting a new low for half a month. The Renminbi midpoint rate is seen as a tool by the People’s Bank of China to guide the foreign exchange market, with Renminbi exchange rate fluctuations limited to within 2% above and below the midpoint rate.
According to Reuters, market participants pointed out that the Federal Reserve’s hawkish policy stance has helped the US dollar index surge. However, the stability of the Renminbi midpoint rate and the tightening liquidity of the offshore Renminbi indicate the regulatory authorities in China are adopting a stabilizing attitude.