At 12:00 am Beijing time on December 19, the Federal Open Market Committee of the Federal Reserve announced that it would lower the target range for the federal funds rate by 25 basis points to 4.25%—4.5%. This is the Federal Reserve's third consecutive rate cut since September this year, bringing the total annual rate cut to 100 basis points. However, from the signals released by the Federal Reserve, its pace of rate cuts in 2025 may be more cautious. As a result, the dollar strengthened, non-dollar currencies and gold fell, and Bitcoin was also affected. Looking ahead, analysts point out that gold prices still have support for medium to long-term increases; with significant strengthening of domestic counter-cyclical adjustments next year, the renminbi exchange rate is expected to continue to fluctuate around a reasonable equilibrium level in 2025.
"The Federal Reserve's rate cut of 25 basis points this time meets market expectations, but the economic outlook guidance and the reduction of future rate cut extent in the dot plot, as well as the hawkish statements from Federal Reserve Chairman Powell, exceeded market expectations," Morgan Asset Management believes. In this meeting's statement, it implied that the future rate cuts by the Federal Reserve may not only be prolonged in time, but the overall extent of rate cuts may also be limited. According to the closely watched 'dot plot', the Federal Reserve indicated that it would only cut rates twice in 2025, fewer than the four times predicted in September. Even four Federal Reserve officials believe that the expected rate cut extent for 2025 is 25 basis points or less. Powell stated that the decision to cut rates in December was more challenging, but it was the 'right decision'. The Federal Reserve is likely to be "more cautious" when considering future adjustments to policy rates. Whether the Federal Reserve will cut rates in 2025 will depend on future data, rather than current predictions, and the Federal Reserve will consider further cuts only after inflation improves.
It is precisely because of the Federal Reserve's 'hawkish' adjustments that the pace of future rate cuts has become cautious, leading to a reverse trend between the dollar and non-dollar currencies compared to previous rate cuts. Looking back to September, the Federal Reserve made its first significant rate cut of 50 basis points in four years, and as signals of narrowing the China-U.S. interest rate spread emerged, the renminbi strengthened, with the offshore renminbi to dollar exchange rate briefly soaring to around 7.08.
On the morning of December 19, the dollar index soared straight up, reaching a high of 108.13; non-dollar currencies collectively fell, with the offshore renminbi to dollar exchange rate breaking below the 7.32 mark. As of 5:00 PM that day, the offshore renminbi to dollar exchange rate was reported at 7.3088, and the onshore renminbi to dollar exchange rate was reported at 7.2977.
Gold and the renminbi exchange rate situation are similar. Also affected by 'hawkish rate cuts', international gold prices plummeted, with spot gold prices falling below $2,600 per ounce. However, as of December 19, Beijing time, spot gold prices have rebounded, rising from an opening of $2,587.5 per ounce to around $2,620 per ounce.
According to Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, the overnight double hit on U.S. stocks and bonds, the strong rebound of the dollar, and the pressure on commodities like gold are not surprising market reactions. The main reason is that the Federal Reserve has signaled a slowdown in the pace of interest rate cuts, raising concerns that a high-interest-rate environment may impact the U.S. economy, leading to a tightening financial environment and selling off high-valued U.S. stocks and other assets.
02
Our policies remain independent
However, looking ahead, analysts generally believe that the fluctuations brought about by this Federal Reserve rate cut will not last for long, from the renminbi to gold.
On the one hand, in the long term, the price of gold is influenced by various factors, including global economic conditions, inflation expectations, geopolitical situations, and investment demand. Wu Zewei, a researcher at the Star Map Financial Research Institute, stated that considering the significant uncertainties in the U.S. economy, the Federal Reserve remains in a rate-cutting cycle. Coupled with Trump's open attitude towards rate cuts upon taking office next year, and even plans for a 'shadow Federal Reserve chairman', the extent of rate cuts may exceed expectations; Trump plans to intervene in the Israel-Palestine conflict, and his external tariffs may provoke retaliation from other countries, potentially increasing global geopolitical risks. Additionally, after several months, the People's Bank of China has resumed buying gold, and the global central bank's trend of increasing gold holdings has yet to peak. These factors will provide support for the rise in gold prices in the medium to long term.
For the renminbi, based on the strong resilience of China's economic growth, the gradual implementation of positive policies, and sufficient foreign exchange reserves, maintaining basic stability of the renminbi exchange rate at a reasonable equilibrium level still has solid support.
Wang Qing, chief macro analyst at Dongfang Jincheng, pointed out that the slowdown in the Federal Reserve's rate cuts next year could become a supporting factor for the dollar index, potentially bringing some passive depreciation momentum to the renminbi. However, the fluctuations in the dollar index are the result of a combination of factors, and changes in the Federal Reserve's monetary policy are just one of them. Regarding the trend of the renminbi in 2025, the most important influencing factor may not be the change in the pace of Federal Reserve rate cuts, but the potential impacts of the new U.S. government's trade policies and the effects of domestic counter-cyclical adjustment policies.
"In the short term, there will be some fluctuations in the China-U.S. interest rate spread, but the policies of China and the U.S. are 'aligned'. Based on the extent of interest rate cuts, the future cuts by the Federal Reserve are expected to be greater than those domestically, and the China-U.S. interest rate spread is likely to gradually narrow," said Zhou Maohua.
It's worth noting that the Central Economic Work Conference's deployment emphasized 'maintaining basic stability of the renminbi exchange rate at a reasonable equilibrium level'. Wang Qing stressed that this does not mean the renminbi's exchange rate against the dollar should remain essentially unchanged, but rather that the CFETS and other three major baskets of renminbi exchange rate indices should maintain basic stability and adapt to changes in economic fundamentals. Moreover, if there are sharp rises or falls in the renminbi exchange rate that diverge from the fundamentals in the future, regulatory authorities will promptly intervene with various exchange rate stabilization tools. History shows that these policy tools can effectively guide market expectations and prevent risks of exchange rate overshooting.
Zhou Maohua further stated that the Federal Reserve remains in a rate-cutting cycle, while the renminbi exchange rate's elasticity has significantly increased. China's policies are centered on itself, and macro policies remain independent. The impact on the domestic stock market is also limited. The fluctuations in overseas markets disturb domestic market sentiment, but the fundamental factors determining the domestic stock market still lie in the domestic economic fundamentals and policies. Currently, China's economy continues to show a steady recovery trend, prices are moderately rebounding, and as the effects of the domestic package of macro policies gradually unfold, domestic consumption and internal demand are expected to accelerate recovery.
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Bitcoin's strategic implementation is hindered
At the press conference following the Federal Reserve's interest rate meeting, Powell also made statements regarding Bitcoin.
"We cannot hold Bitcoin. (Federal Reserve Act) stipulates what we can own, and we have no intention of seeking to amend the law. This is a matter for Congress to consider, but the Federal Reserve has not sought to change," Powell said, indicating that the Federal Reserve does not intend to add Bitcoin to its balance sheet.
Trump previously promised to implement policies favorable to the cryptocurrency industry upon taking office and to consider establishing a strategic reserve of Bitcoin. Now, the Federal Reserve's stance clearly contrasts with the earlier optimistic market expectations. "In the short term, this may have a cooling effect on market sentiment, as some investors may have originally expected Bitcoin to receive higher-level institutional endorsement over time," said Yu Jianing, co-chair of the Blockchain Special Committee of the China Communication Industry Association and honorary chairman of the Hong Kong Blockchain Association.
On December 19, the price of Bitcoin briefly fell below $100,000 per coin, marking the largest single-day drop since August. Just on December 18, Bitcoin had just broken through $108,000 for the first time, setting a new historical high. As of the time of writing, the price of Bitcoin is $101,510, with a drop of 2.6% within 24 hours.
However, in Jianing's view, Powell's statement also reveals another signal: although the Federal Reserve cannot directly hold Bitcoin, its recognition of Bitcoin is gradually shifting from complete neglect to a passive acknowledgment. Especially in the current global macroeconomic environment, decentralized assets are increasingly being viewed by more countries and institutions as reserves and risk-hedging tools, and this trend may continue to reinforce Bitcoin's 'digital gold' attribute in the long term.
At the same time, Powell's direct response to Bitcoin also means that as an emerging asset, Bitcoin has moved from the margins into the realm of mainstream policy discussions, which is undoubtedly an important psychological signal.
Looking ahead, although Trump has promised to implement 'policies favorable to the digital asset industry' and has planned to create new positions related to cryptocurrency in the White House and nominate Bitcoin supporters, there are both opportunities and many practical obstacles behind the policy implementation.
Yu Jianing analyzed that Trump's policy commitment sends a clear message to the market, indicating that the U.S. may relax regulations on the digital asset industry, promoting technological innovation and capital inflow. However, as a non-sovereign asset, the 'decentralized' nature of digital assets cannot ignore the contradictions with traditional financial systems and government regulatory goals. The U.S. Treasury, the Federal Reserve, and other core regulatory agencies maintain a long-term cautious attitude towards the potential financial risks of the digital asset industry, especially under the pressures of anti-money laundering and counter-terrorism financing, regulatory agencies may hold strong reservations about relaxing policies.
Therefore, Trump's policy commitment appears more like a tool for managing market expectations rather than an immediate industry reform, but the actual effect will depend on the complex political and regulatory game. "Whether the U.S. digital asset industry can truly benefit from this policy commitment hinges on whether Trump's team can find a balance between deregulation and risk control," said Yu Jianing.
