Recently, the US dollar has fallen into a sell-off, plus the narrowing of the interest rate difference between China and the US, and institutions have also begun to raise the target price of the RMB in 2024, and the price is generally 7 or even below.

After Thursday's dovish signal from the Fed, the yuan rebounded sharply that day against the dollar, quickly returning to near 7.1 from near 7.2 before and touching 7.08 on Friday. As of 19:50 Beijing time on December 20, USD/RMB was 7.1345 and USD/offshore RMB was 7.1356. Although the exchange rate has eased slightly this week, the difference between onshore and offshore prices has largely disappeared, suggesting that the offshore market is less worried about the exchange rate.

The dollar index (102.3561, -0.0756, -0.07%) is currently trading around 102, having peaked around 106 in November, which was exacerbated by the shift of dollar bulls last week. The dollar index has fallen in four of the past five weeks. However, the president of the New York Fed on Friday dismissed overly aggressive market expectations that it was too early to consider a rate cut, comments that helped the dollar index to halt losses on Friday and hold steady at 102.

For the dollar, the US PCE price index for November is crucial, data will be released on Friday at 21:30, it is the Fed's favorite inflation index, the market expects the headline PCE to slow from 3% to 2.8%, the core PCE to fall from 3.5% to 3.4%.

Relatively speaking, the institution expects that the maximum pressure on the depreciation of the renminbi has passed, and the current period has entered a seasonal strong period, which will usher in the peak of foreign trade exporters' foreign exchange settlement at the end of the year and the Spring Festival next year.

Wang Tao, head of Asian economic research at UBS, told reporters that the U.S. economy is expected to grow more slowly in 2024 and the Federal Reserve will start cutting interest rates. The expected narrowing of the interest rate differential between China and the United States, the prospect of a weaker dollar, and the restoration of confidence in the Chinese economy will combine to push the yuan up slightly against the dollar. "As a result, we expect the exchange rate to be 7.0 against the US dollar by the end of 2024 (previously forecast 7.15)." "Wang Tao said.

Xiong Yi, Deutsche Bank's chief economist for China, told reporters that China's GDP growth is expected to be 4.7 percent in 2024, and inflation is expected to be about 1 percent. Supported by a sustained current account surplus and slowing net capital outflows, the RMB is expected to experience a slight appreciation by the end of 2024. "The trend of the Chinese and US economies and interest rates will support the RMB exchange rate. The Fed is expected to cut rates by a total of 150 BP by the end of 2024, about 100BP more than China is expected to cut rates."

Although the current fundamentals of China's economy are still waiting to pick up, and the CPI falling into the negative range is also worrying, but for the exchange rate, the trend of the US dollar is currently more dominant on the impact of the renminbi.

Tommy Wu, an economist at Commerzbank, told reporters that the yuan has depreciated more than 3 percent against the dollar this year. Although the yuan has appreciated to around 7.1 in recent weeks against a backdrop of broad weakness against the dollar, it will remain under pressure, with the interest rate gap between China and the US likely to persist in the near term, while the Chinese economy is still searching for a more stable footing.

"The PBOC is likely to continue to use the daily midpoint to guide the yuan and prevent its unilateral depreciation," he added. The loan market quote rate (LPR) was unchanged on December 20, but there is a strong possibility that rates will be lowered early next year to boost economic recovery. Since the central bank is committed to lowering the real lending rate for banks, it is likely to further reduce the MLF rate and guide banks to lower the LPR next year. Even if the LPR is not reduced, commercial banks must at least continue to lower their effective lending rates to customers, including mortgage rates, in line with the authorities' latest credit and property policy easing."