- Note: The original debut, plagiarism to any platform, must be investigated to the end! The legs are long, and the chase is more fierce.....
- Regularly update the work, bring you different views and value, thank you for your attention!
The Federal Reserve raised the spear of tightening policy and made huge waves in global financial markets.
On the one hand, the Fed is holding back on the firm stance of cutting interest rates, and on the other hand, the yen, the yuan, and the euro are fluctuating sharply in front of the dollar.
This financial wrestling is like a strategic game, with the Fed trying to co-opt the yen and bring down the renminbi and the euro to launch this endgame.
The outcome of this battle will not only determine the global hegemony of the US dollar, but also affect the stability and prosperity of the global financial market.
Why didn't the Fed cut interest rates?
In 2022, in the face of soaring global inflation, the Federal Reserve adopted a series of aggressive interest rate hikes, rising from 0% all the way to 4.75%, making the dollar appreciate sharply against other major currencies.
However, this strategy did not immediately weaken inflationary pressures, but pushed the US to the brink of recession.
At the beginning of 2023, although the market once predicted that the Fed might slow down its rate hikes or even cut interest rates, Fed Chairman Jerome Powell made it clear that inflation is far from under control and that the Fed will continue to maintain the current level of interest rates, and even does not rule out further rate hikes.
The "co-optation" strategy of the Japanese yen
The Fed's tightening poses a direct challenge to the Bank of Japan.
As an economy that has maintained an ultra-loose monetary policy for a long time, the Bank of Japan is under tremendous pressure - the yen has depreciated by more than 20% against the dollar at one point, the largest decline since 1998.
This has caused Japan's import costs to skyrocket and inflation to record highs.
In response to this situation, the Bank of Japan began to try to cooperate with the Federal Reserve to implement currency swaps around the world and ensure the liquidity of the dollar in the country's banking system.
At the same time, the Bank of Japan intervened in the currency market for the first time by selling the dollar and buying the yen in September 2022.
However, the strong performance of the US dollar has limited the effectiveness of Japan's intervention.
The Fed hopes to use the power of the yen to crush the yuan and the euro, and tries to keep the yen weak for a long time by manipulating the yen exchange rate to keep the Bank of Japan accommodative.
This tactic, known as the "co-optation of the yen", is intended to make the yen a "vassal" of the US dollar, suppressing other major currencies through exchange rate manipulation.
The renminbi and the euro fight back
Unlike the yen, the yuan and the euro did not immediately fall into passivity in the Fed's tightening.
The strategy of the renminbi
The People's Bank of China has adopted a prudent monetary policy and maintained the relative stability of the RMB exchange rate.
Although the renminbi depreciated by more than 8% against the US dollar in 2022, it gradually rebounded in early 2023.
The Chinese government has taken a series of measures to ensure the stability of the financial market, including the management of foreign exchange reserves, the expansion of the offshore renminbi market, and currency swap cooperation with ASEAN countries and Russia.
In addition, China has actively promoted the internationalization of the renminbi and signed renminbi trade settlement agreements with Brazil, Saudi Arabia and other countries to reduce its dependence on the US dollar.
The strategy of the euro
The situation in the eurozone is relatively complex.
In the face of high inflation, the ECB had to follow the Fed's lead and start raising interest rates, raising the benchmark interest rate from 0% to 2.5%.
At the same time, European countries have also introduced fiscal stimulus policies to deal with the energy crisis and the risk of economic recession.
The governments of major economies such as Germany and France have adopted huge subsidies, tax cuts, and social security measures to keep the eurozone's economic growth rate at around 1.5% in 2023.
However, the Fed's interest rate hike policy still weighed on the euro, and the euro fell to 0.95 against the dollar at one point, the lowest level in 20 years.
In order to stabilize the euro exchange rate, the ECB has increased the diversity of its foreign exchange reserves and is actively building monetary partnerships with Asian countries.
Prologue to the Endgame
Although the Fed does not cut interest rates, the final outcome of this currency war is not yet clear.
The yen was forced to remain weak under the Fed's hawkish policy, while the yuan and the euro fought back aggressively.
In 2023, the U.S. dollar index is still hovering around 110 points, with the U.S. dollar remaining around 145 yen per dollar, while the U.S. dollar is trading at 7.2 against the Chinese yuan.
However, the counter-attack strategy of the yen and the yuan is also gradually emerging.
The Bank of Japan plans to phase out negative interest rates in response to inflation and exchange rate fluctuations, while increasing stimulus to the domestic economy.
China, for its part, has accelerated the internationalization of its renminbi, expanded its offshore market, and expanded cooperation with other emerging market countries through the Belt and Road Initiative.
The eurozone, for its part, continues to promote fiscal integration and strengthen financial cooperation among member countries to ensure the euro's stable position in front of the dollar.
The ECB plans to launch a new digital euro project, which aims to strengthen the euro's position in global trade settlements.
Data: Real Money Wars
Yen depreciation: In September 2022, the yen depreciated by 25% against the U.S. dollar, falling from 110 yen per dollar to 145 yen.
RMB depreciation: In 2022, the RMB depreciated by 8.3% against the US dollar, falling from 6.35 RMB per US dollar to 7.2 RMB.
Euro depreciation: The euro fell to 0.95 against the dollar at one point in 2022, the lowest since 2002.
The size of the Fed's rate hikes: In 2022, the Fed raised interest rates by a cumulative 425 basis points, raising the benchmark interest rate from 0% to 4.25%.
The outcome of this endgame will determine the direction of the global monetary landscape.
The Fed is trying to control global financial markets with its policy advantage, but the counter-tactics of the yen, the renminbi and the euro are gradually showing their power.
In the future, whether the Fed will continue to maintain a high interest rate policy or be forced to adjust its strategy will be the key to determining the direction of the global currency war.
- What do you have to say about this? Feel free to leave your thoughts in the comment section!
Or leave a message about the type of information you want to pay more attention to, and the author will provide you with helpful content every day~
- Note: The original debut, plagiarism and transfer to any platform, must be investigated to the end!
-ENDS-
Text: Thousand Trees
Audit|Ancient Oasis, Thousand Trees