QE Ends To Accelerate RMB Devaluation

The Federal Reserve's FOMC announced that it would stop buying debt from November and formally put an end to its unprecedented monetary policy experiment.

Despite the heated debate over the impact of QE on the market, the Fed said it had completed the central mission of the central bank to reduce unemployment.

What is the impact of the Fed's withdrawal from QE on the yuan?

The Federal Reserve ended the QE as scheduled, showing confidence in the US economy and updated its commentary on the performance of the labour market, but at the same time reiterated that interest rates remained at the current low level for quite some time.

However, the market expects that the Fed will shift its focus in the next few months to the point of raising interest rates, and how to issue interest rate signals to the market ahead of time.

That is to say, the US dollar interest rate is beginning to show high pressure, which will lead to more capital returning to the US.

China

China's foreign reserves decreased by US $105 billion in the third quarter of this year, the first quarterly decline since 2012.

In the same period, the US dollar fell 2.6%, or a new high since 1993.

Large capital inflows have pushed up the growth of money supply and supported China's domestic investment.

Sustained capital outflow is seen as a sign that investors are worried about China's growth and solvency.

The Bank of Paris in France also pointed out that the strong appreciation of the RMB against the US dollar may be coming to an end because the Chinese government may stimulate the economy through "small currency devaluation".

Richard Iley, Asia chief economist of Paris Bank of France, said in October 23rd: "the stronger renminbi has magnified the Chinese economy.

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The renminbi will continue to strengthen in the coming months, and will increasingly depend on China.

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If the US dollar continues to strengthen, the pressure on China to let the renminbi depreciate sharply in the near future will go up rapidly.

In the first quarter of this year, the people's Bank of China bought the US dollar to allow the yuan to depreciate by 2.6%, creating the biggest single quarterly decline in 1994.

In the two quarter, the renminbi ceased to depreciate, rising by 0.2%, continuing to rise by 1.4% from June 30th to the present. It has become the only currency in the 31 currencies that Bloomberg has traced except the US dollar.

Data also showed that China's GDP grew by 7.3% in the three quarter, the lowest since the first quarter of 2009.

The International Monetary Fund (IMF) expects that GDP growth in China will fall to 7.1% this year, possibly the lowest since 1990.