Global non-dollar currencies have faced mounting pressure this year, with the US dollar's sustained strength serving as the primary driver. Behind this trend lies the Federal Reserve's aggressive interest rate hikes, which have artificially created significant volatility in international exchange markets. The Chinese yuan's exchange rate against the dollar broke through the psychologically significant 7 threshold and then plunged past 7.2 within less than two weeks, sending market sentiment into turmoil.
Yuan Continues Downward Spiral: Breaking Key Thresholds
Data shows the offshore yuan-to-dollar exchange rate briefly fell below the 7.25 mark, with a single-day drop exceeding 700 basis points, drawing intense market scrutiny. According to China Foreign Exchange Trade System figures, the yuan's central parity rate against the dollar stood at 7.1107 on September 28, down 385 basis points from the previous trading day—the lowest level since June 2, 2020. Although the rate saw a modest 5-basis-point increase to 7.1102 on September 29, the overall downward trajectory remained unchanged.
In early September, the offshore yuan had approached 6.99 against the dollar, coming within striking distance of breaking the 7 barrier. Between September 12-13, both onshore and offshore yuan rates experienced brief rebounds, recovering to around 6.92 before resuming their decline. The last time the offshore yuan broke through 7 occurred in March 2020, when it hit a low of 7.1954 on May 27 before returning to the "6-era" by mid-July.
Meanwhile, US stock markets staged a comprehensive rebound on September 28. The Dow Jones Industrial Average rose 1.88%, the Nasdaq Composite gained 2.05%, and the S&P 500 climbed 1.97%. Technology stocks led the charge, with Meta (the "metaverse" concept stock) surging over 5%—its biggest single-day gain since December 2018. Amazon advanced more than 3% to a one-week high, Microsoft rose nearly 2% from its lowest point since March 2021, Netflix jumped over 9% for its largest gain since January 31, Alphabet (Google's parent company) increased 2.6% from February 2021 lows, and Tesla reversed an early 2% drop to finish up 1.7% at a weekly high.
Central Bank Intervenes Twice to Stabilize Expectations
Facing persistent downward pressure on the yuan, China's central bank implemented two significant measures in September to send clear signals about stabilizing the exchange rate.
First, on September 5, the People's Bank of China announced a 2-percentage-point cut to banks' foreign exchange reserve requirements, increasing dollar supply in the market to alleviate depreciation pressure.
Second, effective September 28, the PBOC raised the foreign exchange risk reserve ratio for forward sales from 0% to 20%, increasing costs for corporate forward dollar purchases to curb speculation and further stabilize the yuan.
Wen Bin, chief economist at China Minsheng Bank, stated: "There's limited room for further yuan depreciation in Q4." He noted the dollar index has little upward potential remaining, China's balance of payments remains fundamentally sound, and seasonal pressures from corporate overseas dividend payments, procurement needs, and study-abroad forex purchases should normalize. At current levels, pent-up corporate forex settlement demand may emerge, and the central bank retains ample policy tools to guide expectations.
Dramatic Rebound: Yuan Stages 1,000-Point Rally
On September 29, the yuan executed a stunning reversal. By approximately 6:00 AM, the exchange rate had surged from around 7.26 back to 7.14—a 1,200-basis-point rebound from daily lows—forming a dramatic V-shaped recovery that injected market confidence.
Cross-Border E-Commerce Perspectives
The yuan's volatility has drawn varied reactions from cross-border sellers. Some view the US-China currency dynamics as part of America's global "harvesting" strategy, noting the euro, pound, and yen have all depreciated significantly against the dollar. China's forex controls and massive dollar reserves, they argue, have slowed the yuan's decline compared to other currencies.
These observers note America traditionally wields three global control mechanisms: values, military, and the dollar. With the Fed's rate hikes triggering dollar repatriation during global economic weakness, wealth is being extracted worldwide—with Japan and Europe bearing initial brunt, while China's exposure remains unclear. While yuan depreciation benefits exporters through higher domestic currency conversions, it raises costs for commodity imports and dollar-denominated real estate debts.
Amid dollar strength, many sellers have initiated forex conversions, though others adopt wait-and-see approaches prioritizing stability—echoing the PBOC's recent statement that "foreign exchange market stability remains paramount."
Manufacturer-sellers note exchange rates don't immediately boost orders, which remain subject to consumer demand and inventory cycles. Anker Innovations' financial reports reveal 96.49% of sales occur overseas, exposing performance to forex volatility through export pricing and procurement costs. Without effective hedging, such fluctuations could significantly impact profitability—making risk management crucial for cross-border businesses.
Conclusion: Navigating Challenges and Opportunities
The yuan's turbulence presents both challenges and opportunities for cross-border commerce. Exporters may capitalize on depreciation to enhance competitiveness and expand shipments, while importers must carefully manage forex risks through hedging strategies. In an increasingly complex global economic landscape, businesses must remain vigilant to exchange rate movements and adapt operations accordingly to maintain competitive advantage.