US Dollar Deposit Rates Fall as Fed Rate Cut Expectations Rise
Guangzhou,China – As the anticipation of a Federal Reserve rate cut intensifies, someChinese banks have begun lowering their US dollar deposit rates, reflecting the changing market dynamics. This move comes as investors anticipate a potential decline in the value of the USdollar, prompting banks to adjust their strategies to mitigate risks.
Several banks in Guangzhou have confirmed that they have recently reduced interest rates on US dollar deposits. Forinstance, Hang Seng Bank has lowered the annualized interest rate on its 3-month US dollar fixed deposit product from 5.0% to 4.9% for new customers, while the 6-month product has beenreduced from 4.7% to 4.5%. Similarly, Standard Chartered Bank has also implemented a reduction in its US dollar deposit rates compared to the previous month.
However, it is important to note that not all banks havefollowed suit. Some institutions, such as Standard Chartered Bank, still offer annualized interest rates above 4%, even reaching 5% for certain products. For example, Standard Chartered Bank’s website currently displays a 6-month US dollar fixed deposit product (minimum deposit of $20,000)with an annualized interest rate of 4.40%. Meanwhile, Guangzhou Bank’s mobile app shows a 6-month US dollar fixed deposit product (minimum deposit of 100,000 yuan) with an annualized interest rate of 4.50%, and Hangzhou Bank’sapp offers a 6-month US dollar fixed deposit with an annualized interest rate of up to 5.00%.
A notable trend observed is that banks are offering lower interest rates on longer-term US dollar deposits. For example, Guangzhou Bank’s app shows that the 6-month US dollardeposit has an annualized interest rate of 4.4%, while the 1-year deposit has an annualized interest rate of only 2.45%. This strategy is likely driven by banks’ efforts to manage risk as they anticipate a potential decline in US dollar interest rates due to the expected Fed rate cut.
The market expects the Fed to cut interest rates in September, leading to a decrease in US dollar interest rates. Banks are lowering long-term rates to mitigate risks, explained a banking insider. This strategy also aligns with the differing demand for US dollar liabilities across different timeframes.
The anticipated Fed rate cutis putting pressure on the US dollar, causing the US Dollar Index to fluctuate downwards. As a result, non-US currencies, including the Chinese yuan, are experiencing an upward trend. At the time of writing, the US Dollar Index is hovering around 100, while the yuan is trading near 7.11 against the US dollar.
The Fed’s benchmark interest rate directly influences commercial banks’ setting of US dollar deposit rates, said Ai Yawen, an analyst at Rong360 Digital Technology Research Institute. Banks also consider various risk factors when determining US dollar deposit rates, including exchange rate risk between theyuan and the US dollar, credit risk, and liquidity risk.
While US dollar deposit rates are adjusting downwards, they are expected to remain at a relatively high level (compared to historical rates) for some time, said Zhou Maohua, a macro researcher at the Financial Market Department of China Guangfa Bank.He anticipates that the Fed will maintain restrictive interest rate levels for an extended period until substantial changes are observed in inflation and the job market.
The clear expectation of a rate cut is putting pressure on the US dollar, and the yuan is expected to strengthen slightly. The yuan is expected to maintain a stable and slightly appreciatingtrend and operate near an equilibrium level, said Zhou Maohua. He attributed this to the domestic economic recovery, the continued release of macroeconomic policy benefits, and the expected balance in international payments, which provide strong support for yuan stability. On the external front, the anticipated transition of the Fed towards a rate cut cycle willlimit the US dollar’s upside potential.
Investment Advice: Be Aware of Interest Rate Fluctuations and Exchange Rate Risk
Despite the current low-interest rate environment, many banks are offering US dollar deposit rates above 4%, making them attractive investment options. However, investors should be aware of the potential forinterest rate fluctuations and exchange rate risk.
While US dollar deposits are still attractive, investors should be aware of the risks, said Ai Yawen. Interest rates could continue to decline, and the yuan could appreciate against the US dollar, impacting the overall return on investment.
Investors are advised to carefully consider theirinvestment goals and risk tolerance before investing in US dollar deposits. They should also monitor market developments and be prepared to adjust their investment strategies accordingly.
【source】http://www.chinanews.com/cj/2024/08-27/10275207.shtml
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