Zhang Chunzi (senior financial practitioner) In 2022, with the rapid changes in global geopolitics driven by the "black swan" and "grey rhino" events such as the Omickron epidemic, the Ukrainian crisis, and the game of big powers, the international currency exchange rate remained

Zhang Chunzi (senior financial practitioner)

In 2022, with the rapid changes in global geopolitics driven by the "black swan" and "grey rhino" events such as the Omickron epidemic, the Ukrainian crisis, and the game of big powers, the international currency exchange rate remains turbulent. Except for the US dollar that continues to appreciate in value based on financial hegemony, the vast majority of other currencies have depreciated to varying degrees. Based on analysis and judgment by various institutions, the monetary policy of major economies may turn again in 2023, and the uncertainty of international geopolitics and the Omickron epidemic is still relatively large. The global financial market will still move forward on a new track of turbulence. The risk of international currency exchange rate fluctuations is still an issue that must be paid close attention to in the asset allocation of large and medium-sized Chinese-owned commercial banks.

1. The US dollar index will gradually fall after a storm all the way

(I) Strong US dollar will be beneficial to US economic growth in the short term

Since entering 2022, the US dollar index has been rising due to the tightening of the Federal Reserve's epic monetary policy and the conflict in Russia and Ukraine and other emergencies. As of October 5, 2022, the US dollar index broke through the 114 mark, at a historical high of 114.79, up more than 18.31% from the beginning of the year. If we count from the beginning of June 2021 (the starting point of this round of strong US dollar cycle), the increase of has exceeded 25.6%. Since November this year, the US dollar index has fluctuated around 110. However, the latest U.S. inflation data showed that the growth rate of the consumer price index (CPI) slowed beyond expectations, which surprised traders in financial markets and triggered speculation that the Federal Reserve will slow down the pace of rate hikes in . On November 10, 2022, the US dollar spot index fell 2%, the largest single-day decline since 2009, with the lowest intraday hitting 107.70, a new low since September 14, closing at 107.86. U.S. Treasury bond yield fell sharply on November 10, and the 10-year Treasury bond yield once hit a five-week low of 3.824%, down 29.8 basis points at the end of the trading day to 3.844%, the largest single-day drop since March 2009. One of the reasons why

caused the sharp drop in the US dollar index on November 10 was a new set of economic data released by the United States. The CPI rose 8.2% year-on-year in September, but in the past 12 months to October, CPI rose 7.7% year-on-year. This is the first year-on-year increase in the US CPI since February 2022, and it is also the smallest increase since January this year, giving people the strongest sign of a slowdown in U.S. inflation. Although U.S. inflation data is still at decades highs, there is evidence that the Fed's inflation-blocking war may see a turning point, and the pace of radical interest rate hikes may begin to slow down. But some economists warn not to immediately declare the worst-case scenario over, and price increases slowed from July to September 2021, but then accelerated again. Therefore, whether the inflection point trend of the US dollar index is established depends on whether the pace of the Federal Reserve's interest rate hikes in will really slow down in the next few months. At the same time, we must also recognize that we cannot understand U.S. economic policies based on the situation of emerging economies and developing countries. Although the US deficit in continues to expand as the US dollar appreciates and purchase power increases, imports continue to increase, which is conducive to US economic growth dominated by consumption. Although the appreciation of the US dollar has a certain negative impact on the profits of multinational companies , on the whole, the continuous growth of the consumer economy has driven the US economy to achieve a 2.6% year-on-year growth of , boosting the confidence of American investors.

(II) The Fed's interest rate hike is still large

First, Interest rate still has room for upward. Judging from the current situation of the Federal Reserve's interest rate hike, the Federal Reserve has raised interest rates six times this year. Relevant institutions predict that the probability of the Federal Reserve raising interest rates by 50 basis points in December to the range of 4.25%-4.50% is 80.6%, and the probability of 75 basis points is 19.4%; the probability of 75 basis points is 50.7% by February 2023, the probability of 100 basis points is 42.1%, and the probability of 125 basis points is 7.2%. The borrowing costs in the United States may eventually be higher than what most people thought a few months ago, and will remain at a high level for a longer time. In terms of the end of interest rate hikes, Federal Reserve Chairman Powell sent a "hawk" signal, saying that interest rate highs may be raised from September's forecast (4.6%).The market expects the Federal Reserve's policy interest rate to reach 5.1% in the first half of 2023.

Second, rate hike cycle event may continue until mid-next year. In terms of the duration of interest rate hikes, Powell said interest rates may last longer for higher, and it is currently too early to discuss pausing interest rates. Powell once again emphasized the need to learn from historical lessons. At present, the Fed is not considering overtighten, but fail to tighten enough or loosen policy too soon. Before the announcement of the inflation report and the Fed's policy makers' speeches, the market expected the end point of interest rate hikes to be above 5%, but after Powell's speech was announced, international financial market traders will lower the forecast of the peak of the Fed's policy interest rate range in 2023 to 4.75%-5%. The market also expects interest rate cuts to begin in the second half of 2023. Overall, although the U.S. economy may decline moderately in 2023, the Federal Reserve hawkish stance may be difficult to turn before inflation falls convincingly. In recent years, the political polarization and fierce struggle between the two parties of the Communist Party and the People of the United States have made its policy-making process increasingly disordered, showing the characteristics of short-term, extreme and populism. At present, the world economy is facing huge downward risks under challenges such as high inflation, tightening of the financial environment, and escalating the Ukrainian crisis. The fragile global economy recovery of growth urgently requires reasonable and moderate global financial support. However, the US fiscal and monetary decision-making authorities are increasingly addicted to pursuing short-term goals to cater to the short-term interests of its domestic campaign politics, constantly releasing "policy poisons", amplifying the risk of economic recession, pushing up global inflation, leading to a tightening of the global financial environment, disturbing financial markets, undermining the international economic and trade order, and compressing the decision-making space of other countries. Therefore, judging from indicators such as inflation trends and employment market performance, the direction of the Federal Reserve's interest rate hike will not change in the short term, and the continued strength of the US dollar will continue for a long time. At the same time, from the perspective of global investors, risk aversion has also aggravated the key role of the US dollar in global banking services and global regulatory capabilities, and has also formed a certain upward support for the US dollar index, hedging part of the pressure brought by interest rate hikes. Therefore, it is expected that the US dollar index will still operate strongly in the 100-110 range.

2. Currencies in other developed economies will gradually rebound after a sharp depreciation

(I) After the conflict between Russia and Ukraine eases, it will support the euro to rebound significantly

1. The euro is " leaking and raining overnight ". The Ukrainian crisis that broke out on February 24, 2022 is a disaster for EU . The euro showed a significant downward trend at high inflation and the Russian-Ukrainian conflict. The euro continued to depreciate against the US dollar, with a depreciation of nearly 20%. After the outbreak of the Russian-Ukrainian conflict, the euro's exchange rate against the US dollar has been falling. On July 13, the euro fell below 1:1 against the US dollar for the first time, and then hit a new low in 20 years. The euro fell from 1.2349 on January 31, 2021 to 1.1496 on February 28, 2022 at the beginning of the Russian-Ukrainian conflict to the lowest point of 0.9535 on September 30, 2022, and then the euro gradually rebounded to around 1 now. Against the backdrop of the euro's depreciation, the import costs of commodities such as energy, food and raw materials have risen, further aggravated the inflation level of the euro zone. Benefiting from the depreciation of the euro, EU export growth accelerated, and services such as tourism have also achieved growth, which are beneficial to European economic growth. For example, France grew by 1.0% in the third quarter, Germany grew by 1.1%, Spain grew by 3.8%, and also achieved positive growth on a month-on-month basis. However, the decline in the euro puts greater pressure on European households and businesses. The impact of high energy costs on the economy as a whole has spread inflationary pressure to more and more industries.

Second, the euro zone economy will still be in a recession process. The continued deterioration of EU leading indicators indicates a severe recession in the winter. If the stalemate of Russia and Ukraine remains unchanged, the downward trend of the euro exchange rate will be difficult to reverse in the short term. Citigroup economists expect that despite adequate gas reserves and fiscal support, the eurozone economy will remain on a recession track under high inflation. The euro zone's real GDP is expected to shrink by 0.3% in 2023 after a 3.2% increase in 2022.However, as the EU's natural gas storage volume has exceeded 90%, the downside risks brought about by the energy crisis have subsided and natural gas prices are falling. At the same time, the large-scale fiscal support that the EU will launch in 2023 further reduces downside risks and supports the further growth of the EU economy.

Third, the euro rate hike drags the appreciation space of the US dollar. The European Central Bank's tough monetary policy has led to higher borrowing costs, complicating the outlook. The biggest uncertainty in EU economic growth is whether the ECB's monetary policy continues to follow the Fed hawks. The ECB has raised interest rates three times this year, with the main refinancing interest rates, marginal loans and deposit instruments raised to 2.00%, 2.25% and 1.50% respectively. The difference in the pace of monetary policy tightening in Europe and the United States has widened the interest rate spread between the United States and Europe, exacerbating capital flows to the US market, further supporting the strong appreciation of the US dollar, while the euro exchange rate continues to decline. However, the ECB's interest rate hike balance sheet reduction will form a pulling force against the appreciation of the US dollar, dragging the upward space of the US dollar to a certain extent. Another important impact of monetary policy tightening expectations is that it has prompted a sharp rise in bond yields in Europe, especially in countries with higher public debt levels such as Italy, where bond yields have increased significantly. As of October 14, the interest rate spread between Germany and Italy widened to 2.6%, up 122 basis points from the beginning of the year. The widening of the interest rate spread between sovereign bonds between Germany and Italy has further increased the risk of financial fragmentation in Europe.

Third, it will take some time for the euro to recover its vitality. In the short term, the euro will remain weak, and the US dollar exchange rate will most likely fluctuate around the 1:1 parity level. In the medium and long term, the euro exchange rate will stop falling and stabilize. As the energy market is rebalancing and uncertainty declines, supply chain bottlenecks are resolved and inflationary pressures are slowing down, and the economic growth of the eurozone may rebound. According to the analysis of the European Central Bank member, the economic growth rate of the eurozone will rise sharply to 1.9% in 2024, and may further recover in 2025, supporting the gradual strengthening of the euro. But uncertainty caused by geopolitical conflicts will continue to affect the European economy, and the euro may not be able to return to the strong exchange rate level against the US dollar before the Russian-Ukrainian conflict.

(II) The sloppy policies of the Trass government and the Ukrainian crisis caused a sharp depreciation of the pound

First, the depreciation of the pound pound tests the British economic growth model. In October 2007, on the brink of the global financial crisis, 1 pound could be exchanged for up to US$2 or more; in April 2015, 1 pound was still against US$1.5; in early 2022, the exchange rate of pound against the US dollar fell to 1.3. In 2022, especially in recent months, the exchange rate of pound against the US dollar was like a roller coaster. Some economists predict that the pound will be in a long-term depreciation trend in the future, and its impact on the UK will be lasting and widespread, and may lead to a radical change in the UK's future economic growth pattern. The continued conflict between Russia and Ukraine and the former government's inappropriate economic policies have caused the pound to fall continuously from its high of 1.3644 on February 28 in the early stage of the conflict between Russia and Ukraine to its lowest point on October 31 at 1.0031. Since the US dollar replaced the pound as the world reserve currency after the two world wars of in the 20th century, especially since the pound turned into a free floating currency in 1971, the depreciation of the pound has been a long-term trend, and its global importance has disappeared.

Second, the fight between fiscal and monetary policies affects the economic governance of the UK. Currency depreciation will have a leveling effect on the price (leveling effect tml6). This may form a vicious cycle: the depreciation of local currency in will lead to an increase in the prices of imported goods and raw materials, and the production costs will also increase, which will create pressure for wages to increase, and wages may trigger price increases again. Once investors find that the attractiveness of the UK economy has declined, British assets will depreciate and the exchange rate will fall further. The UK is a heavily dependent economy, and this shift is equivalent to taxing consumption, which means a decrease in fuel in the UK's economic engine. In addition to external factors, the fundamental reason for this situation is also due to the irrational domestic and foreign policy of the British government, which has caused a drastic adjustment in the pound exchange rate in the short term.The UK is currently experiencing the highest inflation rate of nearly 10% in 40 years. Since 2022, the Bank of England has completed eight interest rate hikes, and the benchmark interest rate has been raised by 75 basis points to 3%, in order to reduce currency flows in economic activities, stabilize prices, and play a certain supporting role in the pound. The main fuse for the latest short-term rapid decline of the pound was the "2022 Economic Growth Plan" launched by the former UK government of Trass. The starting point of this plan may be good. It aims to boost the British economy. The core word is "tax cuts", which covers a wide range of areas such as personal income tax , corporate tax, property tax, and overseas tourists shopping consumption tax. Tax revenue is expected to decrease by £45 billion by 2026 to 2027, accounting for 16.7% of the UK fiscal deficit size of £270 billion in 2021. Affected by this news, the UK's stock , bond and exchange rate markets fell at the same time, achieving a "three-kill". Because the market expects that after the UK tax cut, the fiscal revenue of will be greatly reduced. In order to make up for the funding gap after the tax cut, the government will inevitably issue bonds on a large scale to raise funds. The supply of bonds in the market will increase significantly, and investors will sell British bonds and sell pounds at the same time, causing a sharp decline in pounds. But the tax cut policy of the former government of Trass runs contrary to the Bank of England's monetary policy of controlling inflation . The purpose of tax cuts is to increase incomes of residents and businesses and stimulate economic growth in the UK. This is equivalent to the Bank of England opening the pump pipe to pump water out of the pool, while the British government opening the drain pipe to pour water into the pool. This contradictory policy combination naturally leads to chaos in market expectations.

Third, the rebound of the pound exchange rate depends on whether investors' new policy to the UK government. After the UK replaced the Prime Minister and the Chancellor of the Exchequer at the end of October 2022, the exchange rate of the pound rebounded again, and was still at 1.136 as of November 7. But the structural factors that determine the pound are especially the core differences. The indicator measures the sum of current account currents and net foreign direct investment and is seen as a more stable source of inflows of funds for a currency, while the core deficit requires external financing. In the past two years, the core difference in the UK has deteriorated significantly from the surplus (2% of GDP) to the deficit (8% of GDP). In this case, only if more short-term capital continues to inflows can the pound exchange rate be kept stable. But if foreign investors are concerned that the unsustainable debt exposure in the UK will "repay" foreign debt through inflation or the depreciation of foreign exchange , investors will not be willing to provide financing for the debt burden, and the pound may depreciate further. Of course, the pound will not lose its global mainstream currency status in the short term. Although the pound has depreciated by the actual effective exchange rate of against a basket of currencies, the decline in pound does not seem very extreme compared to the past 20 years. It is expected that by the first half of 2023, the exchange rate of the pound against the US dollar will rise to 1.19.

(III) In the turbulent global environment, the yen has faded its former safe-haven currency. Light ring

One is that the yen was once an important safe-haven currency. The yen is called a "safe haven" currency by Western investment institutions, which has been traced in history. Many financial historical events over the past few decades have shown that the yen exchange rate appreciates whenever global investors' behavior becomes more risk aversion or the fundamentals of the world economy are more uncertain. During the 2008 global financial crisis, the real exchange rate of the yen against the US dollar rose sharply by more than 20%. In May 2010, the anxiety of European and American markets over the periphery of European sovereign countries increased, resulting in a sharp jump in the VIX index. According to an IMF report, the surge in VIX in May 2010 was accompanied by the yen appreciation of 10% against the euro in a few weeks. In early 2013, uncertainty surrounding the Italian elections caused the yen to appreciate by 5.25% against the euro in one day and about 4% against the US dollar in a single day. Historically, whenever the safe-haven currency attributes of the yen occur, the yen will appreciate significantly (or fluctuate), but it has not accompanied any outlier change in the net inflow or net outflow of major capital in Japan that is visible to the naked eye.日元的“避险属性”是宽松货币因素与资本市场套利交易共同作用的结果。首先，日本监管层有非常好的工具来处理银行信用风险或者破产风险。 This gives investors around the world a signal of confidence - Japan's financial system is more stable than Europe and the United States; secondly, Japan has maintained its status as one of the world's top creditor countries in recent decades, and its governments and private parties have purchased large amounts of government bonds issued by other governments and corporate bonds from other countries.据外媒统计，截至今年一季度末，日本持有约96万亿美元的资产，而负债约为65万亿美元；再次，日本央行是发明出“非常规货币政策”的先驱。这些政策使投资者能够利用低利率环境在日本借款，并在西方一些收益较高的市场出借或进行投资。

二是日元“避险天堂”地位受到巨大挑战。 日元自2022年3月以来大幅走贬，日元“避险天堂”货币地位近期还表现出“江河日下”的迹象。 When the international economy showed signs of instability this year, the Japanese yen exchange rate fell sharply, even exceeding the Russian ruble in the geopolitical storm. It did not show any "help-averse attribute", but instead had a bit of "high-risk attribute". 5月份美元兑日元一度跌至1美元兑131.34日元的新低。 2022年10月，美元兑日元汇率一度跌至151.94。日元兑美元汇率自2022年初以来已下跌超过30%，触及32年来低点，迫使日本央行不得不出巨资下场干预。据统计，日本央行9月动用了大约200亿美元的外汇储备进行市场干预，旨在阻止日元下滑，这是自1998年以来日本首次大规模干预。 The reasons for the weakening of the yen can be summarized in two aspects: on the one hand, the Bank of Japan still maintains a loose policy during the global tightening wave, which has rapidly expanded the interest rate gap between Japan and the United States; on the other hand, the soaring energy prices have further inflated Japan's import data, weakening its currency hedging attributes and dragging down the exchange rate.日元汇率走低反映出日本经济中企业效益出现恶化，日本老百姓收入增长缓慢，国内消费信心受挫、内需低迷。

三是日元的前世今生取决于美元的“善心”。 For the Japanese economy, which is highly dependent on exports, the lifeblood of whether its currency can remain stable and not continue to depreciate "fast and dramatically" may also lie in the stabilization of the world economy, especially whether energy prices can fall, and when the EU and the US financial decision-makers will "turn around" from monetary tightening policies and "keep people under the knife".预计2023年只要美国持续维持美元紧缩和高利率，在日美利差和进口数据未修复的前提下，日元汇率还将继续走低至160左右。

3. The currency exchange rate trend of emerging markets and developing economies will still show a large differentiation

(I) The currency crisis in emerging markets and developing economies is greatly affected by the US dollar cycle

From the perspective of external factors, the deterioration of the global trade environment and the large inflows of global capital brought about by the shift in monetary policy of developing economies, etc., have put pressure on the currencies of emerging markets and developing economies.近几十年几乎美元大幅升值都会导致新兴市场和发展中经济体货币大贬值。 September 1977-May 1981 was in the Fed's interest rate hike cycle, which led to the Latin American currency crisis; March 1988-May 1989 was in the Fed's interest rate hike cycle, the US dollar appreciated, and the oil price plummeted, accelerating the disintegration of the original Soviet Union; February 1994-February 1995 was in the Fed's interest rate hike cycle, and the 25BP hike rate hike cycle in March 1997 directly boosted the crisis, the US dollar appreciated, international speculators shorted, and the Asian financial crisis broke out; June 1999-May 2000 was in the Fed's interest rate hike cycle, the US dollar appreciated, and the Argentina crisis in 2001; December 2015-January 2018 was in the Fed's interest rate hike cycle, the US dollar appreciated, and the oil price plummeted, and some emerging resource countries were in the crisis from 2015-2016.From the perspective of internal factors, some emerging markets and developing economies have high government fiscal deficits, soaring foreign debt, insufficient savings, weak foreign exchange reserves, incomplete economic fundamentals, single industries, relying on resource exports, and not sound cross-border capital management systems, etc. The mild ones cause economic recession, exchange rate depreciation, and sharp decline in stock indexes. In severe cases, it leads to social unrest in emerging markets and the disintegration of states (such as the former Soviet Union).

(II) The conflict between Russia and Ukraine combined with the appreciation of the US dollar and interest rate hike cycle have a huge impact on emerging markets

First, the currencies of emerging markets and developing countries are depreciating on a large scale. Affected by the Russian-Ukrainian conflict, currency contraction in developed economies, impact of the epidemic, and rising supply chain risks, the exchange rates of some emerging markets and developing countries, which are already fragile, have made the exchange rates of some emerging markets and developing countries even worse. According to statistics from International Financial Association (IIF), from February to July 2022, the net outflow of overseas investors from emerging market stock and bond markets reached US$38 billion (the outflow scale in July alone was as high as US$10.5 billion). The large outflow of funds has led to a significant devaluation of currencies in these countries. With the outbreak of the Russian-Ukrainian conflict, the Russian ruble once depreciated sharply by nearly 50% in the short term. On March 11, 2022, the ruble exchange rate fell to its historical low. However, as a first-tier country with a vast territory and a large number of resources, Russia has a strong resilience and pressure resistance due to its rich resource endowment and outstanding talented female governor of the Russian Central Bank, and the ruble has strong resilience and pressure resistance. Since May, the ruble's exchange rate against the US dollar has reached a stronger level than before the conflict. On October 15, 1 US dollar was exchanged for 63.06 rubles, one of only three currencies that appreciated against the US dollar (the other two are Brazilian currencies and Peruvian currencies). Since 2022, although the Indian economy and stock market have performed well, the depreciation of the Indian rupee has reached more than 10% due to multiple factors such as the interest rate hike of the Central Bank of India and the global geopolitical changes, the rise in the price of crude oil, and the intensified outflow of overseas funds. On October 19, 2022, the Indian rupee exchange rate against the US dollar exceeded the new historical record of 83 rupee against the US dollar for the first time. The Turkish lira depreciated sharply by 44% in 2021 and further depreciated by 29% this year.

Second, the currency exchange rates of emerging markets and developing countries will show a large differentiation characteristics. The dominance of the US dollar in the international financial markets determines the negative impact of the appreciation of the US dollar on the debt of the global economy, especially emerging markets and developing economies, will be a very realistic problem. Data recently presented by the International Financial Research Association (IIF) shows that debts in 31 emerging markets, including governments, households and businesses, have further accumulated $98.8 trillion in June this year, reaching a record high of $98.8 trillion, 2.5 times their GDP combined. Sri Lanka, once ranked among the middle- and high-income countries in South Asia, became the first emerging market country to go bankrupt in this round of strong dollar cycle. Subsequently, Ghana, Tanzania , Zambia , Ethiopia , Bangladesh , Pakistan , Ghana and others successively requested IMF loan support, opening up the domino of emerging market crisis. In addition to factors such as fragile fundamentals and fleeing foreign capital, emerging markets and developing countries are also directly related to the fact that the central bank of these countries has to follow the Federal Reserve to raise interest rates significantly many times. According to statistics, more than 65 central banks around the world raise interest rates more than 100 times. It is expected that in 2023, the currency exchange rates of emerging markets and developing economies will continue to turmoil. Once the Federal Reserve exits the tightening cycle and emerging markets and developing economies' currency stabilization and economic stability policies will take effect, the currency exchange rate fluctuations in economies with stable economic fundamentals will gradually stabilize.

4. Stable economic fundamentals and huge market potential support RMB exchange rate stable

(I) The fluctuation range of RMB exchange rate is controllable

First, healthy economic fundamentals support the RMB exchange rate to remain stable. According to the central bank's information, since the Federal Reserve entered the interest rate hike cycle in March 2022, thanks to the long-term positive fundamentals of China's economy and the implementation of normalized monetary policies in recent years, the RMB has been relatively stable against a basket of currencies, depreciating against the US dollar, but appreciated against other major currencies.When facing pressure of currency depreciation, we should maintain appropriate macroeconomic policies and strive to maintain stability in economic fundamentals. Regulators should make appropriate policy adjustments and ensure targetedness based on the root causes of depreciation pressure and the characteristics of their own economy. Since the beginning of this year, in the process of responding to the pressure of RMB depreciation, regulatory authorities have mainly used this policy tool. In order to encourage capital inflows and improve the efficiency of foreign exchange funds used by financial institutions, starting from September 15, 2022, the People's Bank of China has lowered the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points, that is, from 8% to 6%. At the same time, in order to reduce capital outflows, starting from September 28, 2022, the People's Bank of China has raised the foreign exchange risk reserve ratio for forward foreign exchange sales business from 0% to 20%. From the current perspective, both policies have produced good results.

Second, the volatility of the RMB exchange rate is generally controllable. Overall, the exchange rate trend of the RMB against the US dollar shows the characteristics of " consolidation - slightly declining - slightly declining". The RMB exchange rate against the US dollar has successively exceeded important psychological barriers such as 6.8, 7.0, 7.2, and 7.3 this year, but in general, the RMB exchange rate remains basically stable at a reasonable equilibrium level. CFETS RMB exchange rate index is basically the same as at the end of 2021. The RMB exchange rate against the US dollar depreciated, but the depreciation was only half of the appreciation of the US dollar during the same period; the RMB appreciated significantly against the euro, pound and yen, and is still one of the few strong currencies in the world at present.

(II) The RMB exchange rate will continue to fluctuate within a reasonable range

Comprehensive analysis of various institutions, in the short term, the RMB has indeed been impacted by non-market factors such as decline in risk preference, linkage of major asset classes and conflicts between Russia and Ukraine. Coupled with the overall US interest rate hike cycle and the relatively good fundamentals of the United States in the short term (China-US bicyclical cycle), the exchange rate is under pressure for a short period of time, but will still operate in a reasonable range.

First, maintaining growth will become the main direction of economic policy. China's economy is continuing to improve marginally, epidemic prevention and control policies are adjusting in line with the times, and international exchanges and people's production and life will gradually move towards normal. By boosting market confidence and refueling policies in the air, China's economy is expected to re-lead the world. Inspired by the spirit of the 20th National Congress of the Communist Party of China, through the implementation of the new development concept of , promoting market-oriented reform, new infrastructure, new energy, encouraging childbirth, stabilizing the real estate market, inspiring entrepreneurship, mobilizing local enthusiasm, unifying large markets, accelerating county-level economic development and rural revitalization, all sectors will continue to enhance their confidence in China's economic prospects, and a new development pattern will be gradually established. The US economic momentum is recession, and the RMB exchange rate may gradually recover lost territory as one rises and the other falls. Therefore, in the long run, China's economic development potential remains huge, and the internationalization of the RMB continues to unfold, and RMB assets will surely be favored more widely.

Second, the RMB will enter a period of fluctuation and upward fluctuation. In 2023, with the further stabilization and recovery of China's economic growth, the main economic indicator of , , continues to improve. Various institutions predict that the economic growth rate will recover to more than 5%, thereby continuing to play an important supporting role in the RMB exchange rate, and the RMB purchasing power will maintain a steady increase. The probability of the RMB depreciation is not high, and the US dollar's transition to a horizontal wide fluctuation will also alleviate the pressure on RMB depreciation. Currently, the RMB exchange rate against the US dollar has depreciated from 6.4 to 7.2. The Federal Reserve is expected to further tighten its monetary policy in the next few months, and it remains to be a while for China's economic growth to recover further. UBS economists expect the RMB exchange rate against the US dollar to be around 7.25 by the end of this year and will further depreciate in the first quarter of 2023. In the second half of 2023, with China's economy recovering, the Federal Reserve suspended interest rate hikes (or began to cut interest rates), which may push the RMB to strengthen again against the US dollar. It is expected to reach 7.1 by the end of 2023, and the exchange rate may fluctuate between 7.3-7.1 for most of 2023. In 2024, with the further recovery of China's economy and the Federal Reserve cutting interest rates more aggressively in the US presidential election, it is expected that the RMB will continue to strengthen against the US dollar, and may reach around 6.9 or even 6.7 by the end of the year. (This article is the author's opinion and does not represent the position of this headline account)