Renminbi Midpoint Exchange Rate Is Stable and Strong
On September 17, the midpoint exchange rate of the renminbi against the US dollar was set at 7.1013, adjusted up by 14 basis points from the previous day, indicating that the central bank is still releasing signals of stability through exchange rate control. Analysts pointed out that before the Federal Reserve’s interest rate decision meeting, the renminbi maintained a resilient trend. This was supported by inflows of domestic capital and a recovering stock market, while also benefiting from a recent decline in the US dollar index. The market expects that as US monetary policy potentially enters a more lenient stage, the renminbi could find more momentum to stabilize around the 7.1 level.
Probability of Federal Reserve Rate Cut Nearly Certain
The CME's "FedWatch" tool shows that the market has formed a strong consensus on a rate cut by the Federal Reserve this week. Current data indicate a 96.1% probability of a 25 basis-point cut, while the chance of a larger cut stands at only 3.9%. Additionally, the outlook for October’s policy is more complex, with the market betting on a cumulative 50 basis-point cut probability reaching 76.8%, noticeably higher than other options. Economists generally believe that the Fed's action in September is likely to be a "preemptive rate cut" to mitigate risks from a slowing labor market.
Bond Market Bets on Aggressive Rate Cuts
Compared to the cautious optimism of stock market investors, bond market traders are apparently more aggressive. Options market data reveals that some traders have increased their positions to hedge against the possibility of the Fed cutting rates by 50 basis points in single moves at upcoming meetings. This bet reflects rising concerns within the bond market about economic slowdown. Especially after signs of weakness in labor data, the market has begun reassessing whether the Fed might be forced to take larger easing actions later in the year.
Inflation Pressure Constrains Policy Choices
Despite the market's general expectation for a quicker easing pace, inflation remains a major constraint on Federal Reserve decision-making. The current core inflation rate in the US is still above the 2% target level, and ongoing increases in tariffs and energy prices have exacerbated price pressures. Some analysts warn that if the Fed relaxes policy too quickly, it may trigger a resurgence in inflation, which could weaken the long-term credibility of monetary policy. Therefore, at the upcoming meeting, Powell and his colleagues may emphasize a "gradual" rather than "aggressive" path.
Global Markets Focus on Policy Signals
High market attention is not only focused on the scale of rate cuts but also on the signals from the Federal Reserve's dot plot and Powell's speech. If the future path suggests a more vigorous easing, the dollar could face further pressure, whereas gold and commodity prices might continue to benefit. At the same time, emerging market currencies' performances may be influenced by capital flows, and the renminbi could gain more leverage in this backdrop.
Outlook and Potential Risks
Overall, the steady strengthening of the renminbi echoes the Fed’s policy shifts. If the Federal Reserve cuts rates by the modest amount anticipated by the market, risk assets may continue to maintain optimism. However, should there be an unexpected single 50 basis-point cut, it could trigger short-term volatility in the market. In the long term, inflation trends and the performance of the US economy will remain key variables determining the intensity of the Federal Reserve’s monetary policy.
