USD Devaluation: Capital Flight to China Post-Rate Hike.
The Federal Reserve has raised interest rates again, this time by 25 basis points. However, it now appears that this rate hike has failed to achieve the desired effect.
Affected by the expectation of a devaluation of the US dollar, as well as the panic caused by a series of bank failures in the United States, funds are being withdrawn on a large scale from the US banking industry and the entire financial market.
We have observed that a significant amount of these funds are flowing into the Chinese market, and the Chinese yuan has risen sharply within just half a month, surpassing an increase of 1800 points.
01. Failure of the rate hike
In fact, the Federal Reserve's rate hike this time seemed very hesitant. They had initially planned to raise rates significantly by 50 basis points. However, in March, several banks suddenly encountered problems, with three banks going bankrupt one after another, casting a shadow over the Fed's rate hike.
The Fed claims that the rate hike is to control inflation, but it is evident that, from the perspective of controlling inflation, the US rate hikes have long been a failure.
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Despite so many rate hikes and such a large increase in the rate, not only has it failed to bring inflation back to the target range of 2%, but it has also led to a recession in the US economy. The most direct effect is that the US banking industry is facing a wave of bankruptcies.
So why is the Federal Reserve still insistent on raising rates? The real purpose is to suppress the exchange rates of other non-US currencies in preparation for future global harvesting.
However, from this perspective, this rate hike has also been a failure.
After the rate hike was announced, the US dollar index fell instead, indicating that the dollar is continuously depreciating, while non-US currencies have coincidentally experienced a significant increase.02, Chinese Yuan Rises by 1,800 Pips
Let's take the Chinese Yuan as an example.
On Thursday morning, the Federal Reserve announced an interest rate hike, and during the day on Thursday, the Chinese Yuan experienced a significant appreciation, rising from 6.86 to a peak of 6.81. Although there was a slight pullback by the close, it still gained 320 pips for the day.
If we extend the timeline a bit, we will notice that previously, the Chinese Yuan against the US Dollar had undergone a round of depreciation, once again approaching the 7.0 threshold.
However, starting from March 8th, due to the bankruptcy of a US bank, it led to a panic in capital fleeing the US market, with a massive sell-off of US Dollars and a significant amount of capital buying Chinese Yuan, causing the offshore exchange rate of the Chinese Yuan against the US Dollar to rise noticeably.
On March 8th, the exchange rate of the Chinese Yuan reached its lowest at 6.99, but it returned to 6.81 at its highest yesterday. In less than half a month, the Chinese Yuan appreciated by 1,800 pips.
03, Capital Flees the United States
The Chinese Yuan started to rise on March 8th, and subsequent data also showed that during the week of March 8th, US bank deposits plummeted by $54.4 billion.
Note that this is the total amount of all bank deposits across the United States. Therefore, it is not the case of deposits moving from small banks to large banks, but rather a net outflow of deposits directly from banks of all sizes in the United States.
Strategists at JPMorgan also pointed out in a report that since the interest rate hike last year, US banks have lost $1 trillion in deposits, but half of that was lost after the Silicon Valley Bank crisis. This means that in just half a month, more than $500 billion in deposits have net outflowed from various banks in the United States.Where did the money go?
Naturally, it is necessary to avoid areas with high risks, such as the United States. Naturally, it is necessary to seek areas that are safe and have stable returns, such as China.
04, Inflow into China
Over this period, with the expansion of wholly foreign-owned public funds, foreign capital is racing against time to join the layout of China's financial market. Through methods such as converting from Sino-foreign joint ventures to wholly foreign-owned enterprises, or foreign investment in domestic companies, they have made the Chinese market business one of the group strategies and actively participate in the development of China's financial market to seek benefits.
At present, we have introduced a number of policies that are conducive to the opening up of China's financial industry to the outside world. In the future, the Chinese market will adopt a registration system and has taken a number of supporting systems to ensure the quality of A-share listed companies.
As the world's second-largest economy, China's stock market has made foreign capital smell the huge economic potential of small risks and great opportunities. It is also this characteristic that makes China's stock market more attractive to investors than the United States.
In recent years, the safety and stability of the renminbi, the low inflation environment in the country, have made foreign capital feel more at ease and profitable.
The recent obvious net purchase of northbound funds is the best proof.
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