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The spot exchange rate of RMB against the US dollar depreciated sharply in May, falling by more than 2.5%.
On May 31, the spot exchange rate of RMB against the U.S. dollar fell below the 7.10 mark, and then fell below the 7.11 mark, and closed at 7.1065 at 16:30, down 164 basis points from the previous trading day.
Throughout May, the central parity rate of RMB against the U.S. dollar fell all the way from 6.9240 to 7.0821, a drop of 1581 points, or 2.28%.
Why did it fall below the 7.0 and 7.1 barriers in May
The exchange rate of offshore and onshore RMB against the US dollar fell below the "7" mark for the first time in 2023 on May 17, and then both fell below the 7.10 mark at the end of the month.
For the rise of the U.S. dollar index, the logic of interest rate differentials is still the main reason for the U.S. dollar’s rise. Driven by stronger-than-expected U.S. economic data and hawkish speeches from Fed officials, the market has begun to accept the Fed’s “higher and longer” expectations. We think The market has also further priced in expectations for further interest rate hikes by the Federal Reserve in July. Short-term and long-term U.S. bond yields rose further and widened the spread between U.S. bonds and non-U.S. bonds of the same maturity.
The current round of depreciation of the RMB exchange rate is mainly dragged down by the weakening of the domestic economic margin. The institution pointed out in the research report that the exchange rate is the relative price of the currencies of the two countries, and changes in the relative strength of the economic fundamentals of the two countries are the basic driving factors affecting the exchange rate trend. As the domestic economy weakened month-on-month, this led to a periodic depreciation of the RMB exchange rate. At the same time, the periodical strengthening of the U.S. dollar and the deepening inversion of the interest rate gap between China and the U.S. will also exert depreciation pressure on the RMB exchange rate.
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