Recently, the Chinese yuan exchange rate has experienced an unexpected decline, with a cumulative drop reaching 1700 points.

The main reason for this sudden phenomenon lies in the unexpected strengthening of the US dollar index.

Around the time of the Federal Reserve's interest rate hike last month, the US dollar index rebounded to some extent. However, as the news of the rate hike gradually digested, the rebound unexpectedly did not stop.

Moreover, the market began to widely judge that the Federal Reserve would not raise interest rates again. Without the support of interest rate hikes, the US dollar index should have fallen.

Unexpectedly, the US dollar index continued to rise, and this unexpected trend had a direct impact on the Chinese yuan exchange rate.

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The rise in the US dollar index has caused fluctuations in the global currency market. Not only has the Chinese yuan fallen, but other non-US currencies have also faced similar pressures. However, it is interesting to note that the Chinese yuan has strengthened against the exchange rates of some countries against the trend.

Domestically, the CPI in July showed a year-on-year negative growth, triggering concerns about the phenomenon of deflation.

However, upon careful analysis, we infer that this is a temporary phenomenon.The negative growth in CPI can be partly attributed to the high base of inflation data from the same period last year. Last year, the sharp increase in pork prices pushed up the CPI level, so the negative growth in the same period this year does not necessarily mean that the overall economy is facing deflation risks.

In addition, the significant decline in pork prices this year has also affected the year-on-year CPI data.

Moreover, we need to pay attention to more comprehensive data, especially the month-on-month CPI data. In fact, after a continuous decline in the past, the month-on-month CPI data has now begun to rise.

At the same time, the core CPI increased by 0.8%, which is an increase compared to last month.

This means that as various consumption gradually recovers and the demand in the service sectors such as tourism and catering continues to expand, the prices of service categories have begun to rise. This data indicates that the Chinese economy is gradually recovering and there is no danger of deflation.

Furthermore, the Chinese government has also taken a series of measures to develop the economy. By providing moderate fiscal support and monetary policy flexibility, the Chinese government is committed to stabilizing market expectations, promoting consumption and investment growth, and further driving economic development.

So, neither the depreciation of the yuan nor the negative growth of CPI can be considered bad news.

Another piece of news is the reduction in deposits, which is actually good news.

Recent data shows that deposit data has been increasing since last year, but in July, there was a significant decrease of more than 110 billion yuan.This phenomenon is not a loss of deposits, but may indicate that funds are beginning to flow from the financial sector to the consumption sector, towards the real economy.

At the same time, data from the National Bureau of Statistics shows that retail sales in July increased by 12.5% year-on-year, which further illustrates that spending on consumption is increasing.

This trend of funds flowing towards consumption is a positive sign.

As the demand for consumption increases, funds begin to be released from savings and invested in daily consumption. This shift helps to promote the growth of the real economy and enhance market vitality.

In order to promote more benefits to become a reality, the central bank has taken a series of interest rate reduction measures.

Firstly, the central bank reduced the PSL interest rate by 10 basis points. Secondly, the interest rate of the monetary market liquidity tool (MLF) also decreased by 15 basis points. It is expected that the LPR will also decrease. Through these interest rate reduction actions, the central bank aims to further stimulate economic growth.

In addition, through these interest rate reduction measures, the central bank aims to stimulate the borrowing needs of businesses and individuals. Lowering interest rates can reduce the cost of borrowing and stimulate the enthusiasm for investment and consumption.

For businesses, this means cheaper financing channels, which can support their expansion and innovation. For individuals, interest rate reductions will alleviate borrowing burdens and encourage them to increase consumption and investment.

Of course, interest rate reductions alone are not enough, but at this time, they are one of the most important measures to stimulate the economy.