External pressure has been significantly reduced, and there is a solid foundation for the RMB exchange rate to remain basically stable

On September 18, the Federal Reserve announced a 50 basis point interest rate cut, which is the first interest rate cut since the Federal Reserve started raising interest rates in March 2022. How do you view the impact of this Fed rate cut on my country? The author believes that it should be understood from the following aspects.
First, in the short term, the interest rate cuts of major economies have significantly reduced the external pressure on the RMB exchange rate. It should be noted that this Fed rate cut is a response to changes in the US inflation and employment situation. As market expectations for the Fed's rate cuts have warmed up and landed, the US dollar index has continued to fall since August, falling by 3%, easing the depreciation pressure on non-US currencies, and the situation of greater depreciation pressure on the RMB exchange rate has also been reversed. Recently, the RMB exchange rate against the US dollar has risen to below 7.1, with the central parity, onshore exchange rate, and offshore exchange rate "three prices in one". Since August, the onshore exchange rate has appreciated by 2.4%.
Second, in the medium and long term, there is a solid foundation for the RMB exchange rate to remain basically stable. From a macro perspective, the exchange rate is fundamentally determined by economic fundamentals. On September 24, the People's Bank of China, the Financial Regulatory Bureau, and the China Securities Regulatory Commission announced a package of heavy-weight policies at a press conference of the State Council Information Office to accurately and effectively support the real economy, which will further consolidate and enhance the trend of my country's economic stabilization and improvement. From a micro perspective, the supply and demand of the foreign exchange market has become more balanced recently. The foreign exchange receipts and payments data released by the State Administration of Foreign Exchange showed that the cross-border receipts and payments of non-bank sectors such as enterprises and individuals have changed from a deficit in the previous period to a surplus of US$15.3 billion in August. At the same time, in recent years, the resilience of my country's foreign exchange market has continued to increase, the hedging rate of enterprises and the proportion of cross-border RMB settlement have increased significantly, and market participants have become more rational in the face of exchange rate changes, which helps to reduce the possibility of large fluctuations in the exchange rate.
Thirdly, from the perspective of policy space, the People's Bank of China has the ability to cope with any interest rate fluctuations and can continue to keep the RMB exchange rate basically stable at a reasonable equilibrium level. The People's Bank of China has repeatedly emphasized that it will adhere to the decisive role of the market in the formation of exchange rates and maintain exchange rate flexibility. This will not only help the exchange rate to play the role of an automatic stabilizer in regulating the macroeconomy and the balance of payments, but also help to improve the autonomy of monetary policy. At the same time, the People's Bank of China has a clear attitude towards preventing the risk of overshooting the exchange rate. In the process of dealing with previous exchange rate fluctuations, the central bank has accumulated a lot of experience and formed a rich toolbox. It has the ability to prevent the formation of unilateral consistent expectations and self-realization, and has the ability to deal with any interest rate fluctuations.
In addition, for market participants, it is necessary to adhere to risk neutrality. The exchange rate is formed by market transactions. At present, there are still many external uncertainties. Under the premise that the RMB exchange rate remains basically stable, no one can make an accurate judgment on the short-term trend of the exchange rate. It may appreciate or depreciate, and two-way fluctuations are the norm. Financial institutions, enterprises and even individual residents must establish a risk-neutral concept and not bet on the direction of the exchange rate. From past experience, betting on unilateral appreciation or depreciation of the exchange rate often brings unnecessary losses.