In the inter-bank foreign exchange market in January, RMB exchange rate fluctuations increased, and market liquidity remained stable

Since 2023, as the impact of the epidemic has gradually subsided, market confidence has been greatly boosted. It is generally expected that the economy will stabilize and improve this year, and the US dollar will continue to weaken. Both internal and external environments support the rise of the spot exchange rate of the RMB against the US dollar.

Recently, according to data released by the China Foreign Exchange Trade System (hereinafter referred to as the "Trading Center"), in January this year, the exchange rate of the RMB against the US dollar first rose and then depreciated, and the whole month ended slightly higher. The manufacturing and non-manufacturing PMIs in December last year showed that my country's economic prosperity has generally declined, and the spot exchange rate of the domestic RMB against the US dollar opened at around 6.92 in early January.

On January 13, Xuan Changneng, vice-governor of the People's Bank of China, said at a press conference held by the State Council Information Office that the current and future trend of the RMB exchange rate will be affected by domestic and foreign economic and financial situations, balance of payments, and market risks. Influenced by multiple factors such as preferences, overall, there is a solid foundation for maintaining basic stability. Recently, China's economy has continued to resume development in general, and the epidemic prevention and control has been dynamically optimized. In the context of high global inflation, my country has maintained basic stability in prices. Considering the decline in the economic prosperity index of major economies, the growth rate of my country's trade surplus may have declined. Under the combined effect of various forces, the RMB exchange rate will generally maintain a stable operation.

In January, the volatility of the RMB exchange rate increased and remained at a historically high level. The spot exchange rate of RMB against the US dollar fluctuated by 2,352 basis points in the month, an increase of 361 basis points from the previous month; the annualized exchange rate volatility was 6.9%, an increase of 2 percentage points from the previous month, which was higher than the average level of 6.4% in the whole of last year. Overall, the monthly annualized volatility is at a historically high level, reflecting that the two-way volatility of the RMB exchange rate has further strengthened.

At the same time, the RMB exchange rate index fluctuated at a high level. The RMB exchange rate index fell back slightly after surging. Among them, the CFETS exchange rate index rose again to above 100 points in the middle and early January, and fell back slightly to below 100 points in the second half of the year.For the rapid appreciation of the RMB exchange rate in the short term, Guotai Junan attributed it to factors such as the adjustment of Sino-US policy expectations, the slowdown of capital outflows, and the catalysis of the "foreign exchange settlement wave" before the Spring Festival. Since the beginning of this year, China's economic outlook has been positive, and the slowdown of the US tightening policy has gradually been confirmed. The Chinese economy is expected to open up space under the catalysis of the real estate policy and the adjustment of the epidemic policy, while the US economic recession is expected to be rapidly fermented by the impact of the service industry. In terms of policy, the Fed’s slowdown in raising interest rates has confirmed that the US dollar index has fallen, which has also brought about a passive appreciation of the RMB exchange rate from a pricing perspective.