How will major currencies move in the future?
Let's look at this issue with the dollar as the main line:
First phase of appreciation (80-85): The dollar experienced depreciation in the 1970s due to trust issues stemming from the decoupling of the dollar from gold. In 1980, U.S. interest rates peaked at 19%, which continuously boosted the dollar index.
Second phase of depreciation (85-08): In 1985, the dollar index peaked, which provided an excellent opportunity for Japan. Japan's automotive semiconductors defeated the U.S. significantly, leading the U.S. to initiate the Plaza Accord in 1985, forcing the yen and the German mark to appreciate, while the dollar depreciated. The dollar thus entered a declining channel - until 2008.
This time the depreciation of the dollar has a significant effect; we can see that the export share of the United States increased from 1985 to 2000, while Japan's export share has been declining until now.
Third phase of appreciation (08-now): Around 2008, the dollar reached its bottom and then entered a continuous upward channel. During this period, the export share of the U.S. did not change significantly, while Germany and Japan's shares continued to decline, and China's exports continued to grow, indicating that:
- Relative to Japan and Europe, the U.S. has structural advantages (energy/high technology?), so currency appreciation has not affected its share, while Japan and Europe continue to lose export shares while depreciating their currencies.
- Calculated at the beginning of 2008, the RMB against the dollar has basically not changed, which indicates that the RMB is roughly pegged to the dollar, with a range between 6-7.5. During this period, China's competitiveness increased, and its export share continued to grow, indicating that China has a structural advantage over the United States.
The question arises: Will the dollar continue its current appreciation path, or will it start to turn like in 1985?
First of all, the depreciation and appreciation of currency depend on the willingness of various central banks. For example, if the People's Bank wants the RMB to depreciate, it can easily do so by issuing more currency and lowering interest rates. Conversely, if it wants the RMB to appreciate, it is similar: issue less currency and raise interest rates. Extreme monetary policy is like BTC; the current inflation rate is 1%, so overall it is in an upward state.
If we look at the 'third phase' above, it is clear that the depreciation of the Euro and Yen is a proactive adaptation to a weak economy - if the European Central Bank maintains its currency without depreciation, their exports would decline even more severely; simply put, the competitiveness of these two regions is lacking.
So my estimate is as follows:
1/ When considering the euro and yen together, there will inevitably be a trend of depreciation against the dollar in the future. For this, Americans probably don't care, because it has been proven that their depreciation is useless. Conclusion 1: In the future, the DXY is expected to continue appreciating. (Note: DXY only includes ratios against developed economies)
2/ Dollar to RMB: The dollar should hope to depreciate because the United States wants to bring manufacturing back, especially relative to the RMB. The previous strategy of the RMB was 'peg'; will China and the U.S. negotiate a new version of the 'Plaza Accord'? No one knows.
From the perspective of the PBOC, I think both appreciation and non-appreciation have their benefits: appreciation is conducive to boosting domestic demand, while non-appreciation allows for continuous growth in export share, which is also reasonable. So it may mainly depend on whether Trump will negotiate tariffs, the Taiwan issue, exchange rates, etc. together. Conclusion 2: Whether there will be an appreciation depends on how both sides negotiate, but the probability of the RMB depreciating against the dollar is very small. One reason is that the PBOC is unwilling, and the second is that Trump is even more unwilling; depreciation will inevitably provoke a huge reaction from Trump.
