Sudden surge in the market! USDT/RMB rebounds to break through 7.05, and the Chinese central bank's "interest rate cut" ends the depreciation cycle

FX168 Financial News Agency (Asia Pacific) reported that after the Federal Reserve decided to cut interest rates by 50 basis points in September last week, USDT/RMB once fell below the integer mark of 7. However, on Monday (September 23) in the Asian market, USDT/RMB rebounded and broke through 7.05. The People's Bank of China (PBOC) lowered the short-term policy interest rate, ending the USDT depreciation cycle and alleviating the panic of the Federal Reserve starting to cut interest rates.

Source: Google

Just a few months ago, one USDT was worth 7.3 yuan. After the Fed cut interest rates, it depreciated to 6.9 yuan. Many people saw the market trend and avoided the big corrections in July, August and September, but the result was that even without investing, their assets shrunk by about 6%.

Read more: China's economic pressure: China Minsheng Bank's salary plummeted by 50%, the unemployment rate hit a record high in August, and Xi Jinping implemented austerity policies

Looking back at history, in the last interest rate cut cycle from August 2019 to March 2020, the USD/RMB exchange rate changed from 7 to 6. USDT, as a stable currency pegged to the US dollar, also depreciated during this period. In September, the Fed's interest rate cut cycle started again, and the depreciation of USDT will follow.

First, the Fed's interest rate cut actually increases the supply of US dollars, and oversupply will lead to depreciation. Secondly, the United States continues to repay old debts with new debts. This "snowball" approach has made the US debt crisis more and more serious, making US dollar assets less attractive, and it is easy to cause the depreciation of the US dollar.

Not only is the US debt default a "time bomb", the first 50 basis point interest rate cut in history is accompanied by a disaster in the financial market. Therefore, the market still needs to be cautious about the possibility of USDT continuing to decline in the semi-long term.

Spencer Jakab, a columnist for the Wall Street Journal (WSJ), warned that the market rebound triggered by the Fed's announcement of a 50 basis point interest rate cut in September is very similar to the eve of Lehman Brothers' bankruptcy in 2007. After the big rise, it ushered in a collapse. He believes that the current easing cycle launched by the Federal Reserve will not save the market.

But on Monday, USDT/CNY rebounded.

As China’s domestic economic slowdown intensified, the People’s Bank of China cut its short-term policy interest rate as part of a rate cut that began in July, Bloomberg reported.

The People's Bank of China on Monday cut the 14-day reverse repurchase rate to 1.85% from 1.95% previously.

The central bank also injected 74.5 billion yuan, or about $10.6 billion, of liquidity into the banking system through the tool, the central bank said in a statement.

The move was made ahead of the seven-day National Day holiday starting on October 1.

The central bank usually provides 14-day loans before long holidays.

It is reported that the last time the central bank provided such loans was in February this year, before the week-long Lunar New Year holiday.