The Chinese yuan's exchange rate against the US dollar has hit a new low for the year.

As of 10:00 AM on June 21, the onshore yuan's spot exchange rate against the US dollar fell below 7.26, reaching 7.2607, while the offshore yuan's spot exchange rate touched 7.2923, approaching the psychological threshold of 7.3 once again.

Why has the yuan's exchange rate against the US dollar declined recently?

The recent pressure on the yuan's exchange rate against the US dollar is mainly due to the passive devaluation driven by the strengthening of the US dollar under the influence of divergent monetary policies in major economies and rising global risk aversion.

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Data shows that while the yuan's exchange rate against the US dollar reached a new low for the year, the US dollar index also stabilized above 105 from its previous fluctuations in the 104 range.

Several leading indicators of the US economy and signals from the Federal Reserve have led the market to anticipate that the US may maintain high interest rates for a longer period, and the start of the European interest rate cut cycle has widened the interest rate differential between the US and Europe.

Under the influence of geopolitical factors such as the European Parliament elections and Indian elections, risk aversion has risen again, prompting investors to increase their positions in US dollar assets, pushing up the US dollar index.

Zhu Hexin, Deputy Governor of the People's Bank of China and Director of the State Administration of Foreign Exchange, recently pointed out that as the US inflation falls back and is obstructed, the market expects the Federal Reserve to delay the timing of interest rate cuts and narrow the range.

This year, the US dollar exchange rate and US Treasury yield have generally rebounded and risen, increasing global foreign exchange market volatility, with non-US currencies generally under pressure, among which Asian currencies have depreciated faster, recently drawing market attention.

"China's foreign exchange market faces increased external challenges, but has once again withstood the test, showing relatively strong resilience.

The yuan's exchange rate against major currencies has risen and fallen, and has been stable with a slight rise against a basket of currencies, with exchange rate expectations becoming more stable," Zhu Hexin said.

Amidst the turbulent global financial market, the yuan's exchange rate against the US dollar has once again become a focus of attention.

Recently, the yuan's exchange rate has reached a new low for the year, approaching the psychological threshold of 7.3, sparking widespread discussion in the market about the subsequent trend.

Behind this wave of depreciation, it not only reflects the complex changes in the international economic situation but also highlights the unique position of China's economy in the global monetary system and its resilience.

This article will combine economic theory with the latest data to deeply analyze the reasons for the fluctuation of the yuan's exchange rate and look forward to the possible future trend.

I.

Background Analysis of Recent Fluctuations in the Yuan's Exchange Rate 1.

The strong rise of the US dollar index.

Recently, the US dollar index has broken through the 105 mark, reaching a multi-year high, becoming the main external factor driving the weakening of the yuan's exchange rate.

The relatively strong US economic data, coupled with the Federal Reserve's continuous interest rate hikes to combat high inflation, has increased the attractiveness of US dollar assets, with global funds flowing to the US dollar for risk aversion, thereby pushing up the US dollar index.

In addition, the start of the European interest rate cut cycle has further widened the interest rate differential between the US and Europe, strengthening the appreciation momentum of the US dollar.

2.

Increased global economic uncertainty.

Geopolitical tensions, such as the European Parliament elections and Indian elections, have intensified market risk aversion.

Against the backdrop of slowing global economic growth, investors tend to reduce their allocation of risky assets and instead increase their holdings of US dollar assets, further pushing up the US dollar exchange rate, and the yuan is therefore under depreciation pressure.

3.

The impact of China's economic fundamentals.

Although China's economy faces certain downward pressures, it generally maintains a recovery trend.

With the optimization and adjustment of epidemic prevention and control policies and the continuous implementation of growth-stabilizing measures, the robust economic fundamentals provide internal support for the yuan.

In addition, China's large foreign exchange reserves and orderly capital account management also provide strong protection for the stability of the yuan's exchange rate.

II.

Resilience of the Yuan's Exchange Rate In the global currency environment where the US dollar dominates, the yuan has not collapsed but has shown unique resilience: 1.

Flexibility of the exchange rate mechanism.

China implements a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies.

This mechanism allows the yuan's exchange rate to fluctuate within a reasonable range, which helps to absorb external shocks and reduce the direct impact of unilateral fluctuations on the economy.

2.

The maturity of the foreign exchange market has improved.

In recent years, the depth and breadth of China's foreign exchange market have been continuously expanding, with more diversified market entities and increasingly rich risk management tools, which has improved the market's self-regulation ability and helped the yuan's exchange rate to show stronger stability in the face of external shocks.

3.

The process of internationalization of the yuan.

With the increasing frequency of the yuan's use in international trade and investment, its status as an international reserve currency has gradually improved, which also provides additional support for the stability of the yuan's exchange rate.

Even against the backdrop of a strong US dollar, the proportion of the yuan in the global payment system has remained relatively stable, showing its important position in the global monetary system.

III.

Future Outlook The dynamic balance of the yuan's exchange rate 1.

Short-term fluctuations and long-term trends.

In the short term, the yuan's exchange rate will continue to be affected by multiple factors such as the strength of the US dollar, the global economic situation, geopolitical factors, and domestic economic policies, and there is a certain degree of volatility.

However, in the long term, as China's economic structure is optimized and upgraded, its openness to the outside world deepens, and the process of internationalization of the yuan progresses, the yuan's exchange rate is expected to achieve a more balanced level under the market mechanism.

2.

Policy response and market expectations.

The People's Bank of China and the foreign exchange management department have repeatedly stated that they will maintain the basic stability of the yuan's exchange rate at a reasonable and balanced level and take timely measures to maintain the smooth operation of the foreign exchange market.

The transparency and forward-looking nature of policies help to guide market expectations and reduce disorderly fluctuations.

3.

The linkage effect of global economic recovery.

If the global economy gradually emerges from the trough in the future and international trade and investment activities pick up, it will help to alleviate the depreciation pressure on the yuan.

At the same time, if US inflation is effectively controlled and the Federal Reserve slows down the pace of interest rate hikes, the US dollar index may adjust, providing upward repair space for the yuan's exchange rate.

In summary, the recent fluctuations in the yuan's exchange rate against the US dollar are the result of the dual effects of the complex global economic environment and the adjustment of China's domestic economic structure.

Faced with external pressures, the yuan's exchange rate has shown its unique resilience, which is both a reflection of the operation of the market mechanism and a reflection of the robust fundamentals of China's economy.

In the future, the yuan's exchange rate will seek a new balance point in the dynamic changes of domestic and international economic and financial situations, and the sustained and healthy development of China's economy will provide a solid foundation for the long-term stability of the yuan's exchange rate.