In the early hours of Thursday (December 19th) Beijing time, the Federal Reserve announced a 25 basis point rate cut, lowering the target range of the federal funds rate from 4.5% to 4.75% to 4.25% to 4.5%. This is also the third consecutive meeting of the Federal Reserve to announce a rate cut after September and November, and the cumulative rate cut for the whole year has reached 100 basis points. But the result of this rate cut was beyond the expectations of many textile workers.
Although the Federal Reserve announced a rate cut, it subsequently made a hawkish speech, reducing the frequency of rate cuts in 2025. The US dollar index soared straight up, and the US dollar soared 1.22%, rising to the highest level since November 2022, and the increase shocked the world.
In fact, it is not just the RMB. In the case of a sharp appreciation of the US dollar, non-US currencies fell across the board. For example, the US dollar against the Canadian dollar rose 0.63% to hit the 1.44 mark, the first time since March 2020; the US dollar against the Japanese yen rose 0.08%. To be honest, textile workers should be used to the sharp rise and fall of the RMB exchange rate since the Fed's aggressive interest rate hike in 2022, but it is rare for the currency to continue to appreciate after the interest rate cut. The Fed's interest rate cut and subsequent meetings have basically set a tone for the US monetary policy in 2025, and based on this tone, the external market of textiles may also change.
Since textile workers still settle their exports in US dollars most of the time, the exchange rate of RMB against the US dollar is what everyone is most concerned about. However, after several rounds of exchange rate fluctuations, we also found that among global currencies, the US dollar is often the most unique one, and the trends of other currencies are basically the same. Take the rise of the US dollar this time. It seems that the RMB has fallen below the new low after 23 years, but in fact, non-US currencies such as the Canadian dollar, British pound, and Australian dollar are all falling, and the decline of the RMB is not even that big. Although the US dollar is used in transactions, currency is only a medium. Although the US consumer market is large, the majority is still consumers in other parts of the world. When trading with them, the RMB has fallen, and their local currency has also fallen, and the actual impact on profits is not that great. In the following period after Trump took office, large fluctuations in exchange rates are likely to remain normal, and textile workers can maintain a normal mind.
Every time the dollar tide is formed, it is actually overdrawing the credit of the dollar. The continuous appreciation of the dollar has caused a dollar shortage in the market, which has increased the cost of customers in other countries to use the dollar for transactions. Since 2022, customers in many places have reported that it is becoming more and more inconvenient to use the dollar for transactions, and foreign exchange cannot be applied for at all, and they cannot buy anything they want. In addition, the continued high level of the dollar will also cause some countries that are not rich in finance to fall into a deeper crisis. Some countries themselves have insufficient hematopoietic capacity and owe a lot of dollar debts to foreign countries. After the appreciation of the dollar, these countries need to pay more resources and labor when repaying their debts, which will worsen the local economic level and force some countries to bypass the dollar for transactions.
However, in the short term, the decline in the RMB exchange rate is a good thing for textile workers who have a demand for currency exchange at the end of the year. Because of the interest rate gap between China and the United States, when the funding situation is not tight, many textile workers doing foreign trade will choose to keep part of the US dollar and not convert it into RMB. When the US dollar appreciates, these external funds become more valuable. At the end of this year, due to the huge funding gap in the textile market, there is a greater demand for foreign exchange. The appreciation of the US dollar can allow these foreign currencies to be exchanged for more RMB, allowing textile workers to have a more prosperous year.
