RMB/USD Mid-price at 6.3288, Down 272 Basis Points

On March 4, the RMB/USD mid-price was at 6.3288, down 272 points; the mid-price was 6.3016 on the previous trading day, the official closing price was 6.3184 on the previous trading day, and the previous day's overnight market closed at 6.3208.

The central bank conducted 10 billion yuan of 7-day reverse repo operations today, with the winning rate of 2.10%, unchanged from the previous one. As 300 billion yuan of reverse repo expired today, a net re-cap of 290 billion yuan was achieved.

On March 3, local time, Federal Reserve Chairman Jerome Powell said during an appearance before the Senate Banking Committee hearing that the Fed is considering a 25 basis point interest rate hike in March to curb the inflation phenomenon.

According to Bloomberg, Powell said Russia's military action in Ukraine has created uncertainty for the U.S. economy, so the Fed will be cautious in its decision. He believes that the decision to raise interest rates will help ease the inflation phenomenon, and if inflation does not ease, he will consider increasing the rate hike, in addition to the Fed will begin to reduce the size of relevant asset holdings after the first rate hike.

The report noted that the U.S. inflation rate has hit its highest level in 40 years, and some officials said the Fed may raise interest rates by 50 basis points this year if inflationary pressures are not eased, and the Federal Open Market Committee monetary policy meeting will be held on March 15-16.

According to Xinhua Finance, UBS said that according to historical data, the yuan generally outperforms other non-dollar currencies during periods of uncertainty that envelop the global economy and financial markets, when investor risk aversion is high.

UBS said the recent rise in the trade-weighted renminbi exchange rate, as well as increased upward pressure on option volatilities for other currencies, but largely unchanged option volatilities for the dollar against the onshore and offshore renminbi, corroborate the observation of the renminbi's resilience.

However, UBS also believes that the stability of the RMB does not mean it is embarking on a path of appreciation. On the one hand, the PBoC is likely to ease monetary policy further, while the Fed prepares to embark on a rate hike cycle and balance sheet reduction.

On the other hand, Chinese inflation is likely to rise moderately in the next 12 months, while US inflation is expected to fall back. As a result, the favorable RMB carry advantage will gradually fade away, especially in real interest rate terms.

According to Industrial Research, the RMB exchange rate may repair overvaluation in the future through a "stable relative to the US dollar + depreciation relative to non-US" approach. It is recommended to partially lock exposure to non-U.S. currencies such as the euro during the geopolitical risk fermentation period.