For national currencies that adopt floating pricing based on market supply and demand, the factors that affect their exchange rate trends are relatively complex, including short-term factors such as emergencies and market sentiment, as well as economic fundamentals, balance of payments, etc. long-term factors. However, the RMB exchange rate against the US dollar can show an "inverted V" trend from rising to falling in less than two months. As slow variables, medium and long-term factors obviously cannot change significantly and affect the exchange rate in such a short period of time. Yes, short-term factors play an absolutely important role in comparison. Among them, the changes in the US dollar index and market sentiment are the most obvious.

Looking back at the trend of the U.S. dollar index since the end of July, we can find that it has increased by more than 3% in the last 20 trading days, while the onshore and offshore RMB exchange rates against the U.S. dollar have fallen by less than 2% during the same period. This shows that despite the strength of the U.S. dollar index, the RMB exchange rate has been "dragged down" , but some other positive factors supported the RMB and alleviated some of the depreciation pressure.

However, in the past 10 trading days, the U.S. dollar index has only risen by about 0.7%, while the RMB exchange rate has depreciated by 1.5% against the U.S. dollar, and the RMB exchange rate against the U.S. dollar is accelerating its depreciation. This is consistent with some economic and financial data released in July pointing to the weakening of economic recovery momentum, the speed and intensity of countercyclical control policies falling short of market expectations, and risk events affecting real estate companies and other fields. These will affect market sentiment and confidence. Reflected in the decline of the stock market resonance.

In the short term, there is still some depreciation pressure on the RMB exchange rate. The minutes of the latest Federal Reserve meeting showed that it is more likely to continue to raise interest rates during the year, and the U.S. dollar index still has strong support in the short term. Coupled with domestic interest rate cuts, the interest rate gap between China and the United States will remain suppressed in the short term as it hovers at a high level (and may expand further). Weak range, but the weak range will be affected by market sentiment and confidence.

In the current environment, changes in market sentiment and confidence are inseparable from policies that respond to market concerns as quickly as possible and with greater intensity than expected. The central bank's timely interest rate cut this week deserves full recognition. The "China Monetary Policy Implementation Report for the Second Quarter of 2023" released yesterday also proposed to resolutely prevent the risk of exchange rate overshooting. The Second Plenary Session of the State Council emphasized "vigorously improving administrative efficiency to provide strong guarantee for the completion of various tasks", "ensure the completion of annual targets and tasks", and "promote the resolution of substantive risks in key areas".