I originally wanted to wait until the interest rate cut to start this topic, but I didn't expect it to be brought forward now.

In the long article over the weekend, I mentioned the main direction of the US dollar interest rate cut to slow down its own depreciation.

For the field of foreign exchange, I actually want to say bluntly that the US dollar liquidity must be taken over by someone, otherwise the interest rate cut will face a big test for the US dollar. Now, I have mentioned this issue through the mouths of professionals.

After the US dollar interest rate cut, if there is no place to take over the liquidity of a large number of US dollars, it will be a "trampling" depreciation for the US dollar.

Of course, this situation may not occur at present. In the depreciation, it is still the current mainstream settlement currency. Someone must take it over, but its influence is bound to be less than the previous interest rate cuts, especially the throughput of a certain Eastern country, which determines the liquidity problem.

However, a certain Eastern country also has to face the most intuitive problem, whether it can continuously absorb US dollar liquidity. The article in the picture only preliminarily estimates that there will be trillions of liquidity recovery accompanied by interest rate cuts, but the key is the subsequent policy, whether it will be continuous recovery or tightening.

1. After the initial passive liquidity recovery, RMB may appreciate relatively. The article in the picture expects the appreciation to reach 5%-10%. Many people believe that currency appreciation is always a benefit. On the contrary, currency appreciation in certain states, especially appreciation during the US dollar interest rate cut stage, is more harmful than beneficial.

RMB appreciation, US dollar depreciation, and poor export competitiveness. After all, what we are facing now is the process of domestic production capacity relocation. Export competition has weakened, which is not conducive to domestic relocation. At the same time, currency appreciation puts heavy pressure on economic growth, which is not conducive to economic growth.

2. If the initial passive liquidity recovery stage is tightened, although it can slow down the impact of the US dollar interest rate cut and ensure export competitiveness, internal problems will also be more troublesome. Once the exposure is reduced, domestic speculative funds will flow out in large quantities to pursue high returns, which will lead to short-term capital outflows.

3. If the liquidity recovery policy is reduced at the beginning, then foreign exchange reserves will also face stress testing.

Therefore, the US dollar interest rate cut and the US dollar depreciation are really a ripple effect. The tidal effect brought about by the US dollar interest rate cut needs to be paid attention to by the world.