Question

On Thursda, the onshore yuan jumped by 386 basis points against the us dollr to 7.1811 as of 16:30, after it shed 872 basis points against the geenack in a three -day weakening steakso far this year, the onshore yuan has depreciated by more than 3 percent against the ollar, which experts atibuted to china us monetary poliey divergence as well as the us economy's resilience when china's economic recovery had slowed down. China's one year loan prime rate, a market based benchmark lending rate, came in at 3.55 percent on thursday, unchanged from the previous month, after it fell by 10 basis points in june as thepboc further eased monetary policy to support the economy. By contrast, the US federal reserve is widely expected to further raise the target range for the federal funds rate by 25 basis points to 525-55 percent next weck the widening us -china inerestrate differential, experts said, has put pressure on the yuan against the dollar. Please use the complete theory-unifying the monetary and asset approaches-to analyze why rmb depreciated.

Answer 1

The depreciation of the onshore yuan against the US dollar can be attributed to China's monetary policy divergence with the US and the resilience of the US economy. Market participants consider the interest rate differential and economic performance of the two countries.

Step-by-step explanation:

The depreciation of the onshore yuan against the US dollar can be analyzed using the theory that unifies the monetary and asset approaches. In this case, the depreciation of the yuan is due to China's monetary policy divergence with the US and the resilience of the US economy.

China's monetary policy, as reflected by the one-year loan prime rate, has remained unchanged in recent months, while the US Federal Reserve is expected to raise interest rates. This divergence in interest rates creates a wider interest rate differential between the US and China, putting pressure on the yuan.

Additionally, market participants also consider the economic performance of both countries. When China's economic recovery slowed down, the US economy remained resilient, attracting investors and strengthening the US dollar.