Why does the US dollar appreciate when the Fed raises interest rates?
The Fed's interest rate hike simply means that the US central bank wants to raise interest rates, thus increasing the borrowing cost of commercial banks to the central bank, allowing more money to flow into banks and reducing the liquidity interest rate of money. As a result, when people are scrambling to deposit dollars in banks, there are fewer dollars wandering in the market, so the Fed raises interest rates and the dollar will appreciate as a whole.
In the foreign exchange market, the appreciation of the US dollar will lead to the depreciation of other currencies, and China is no exception. When the RMB depreciates against the US dollar, the same amount of RMB can be exchanged for less US dollars. At this time, people who hold dollars will benefit, while those who want to exchange RMB for dollars will suffer. In addition, if the RMB depreciates, it will lead to an increase in the cost of imported goods and may even lead to an increase in the price of imported goods.
Will the dollar appreciate when the Fed raises interest rates?
Not necessarily. Since the collapse of the Bretton Woods system, there have been at least six cases of "interest rate increase cycle but dollar depreciation". Among them, 1970s appeared twice, once in the middle of 1990s, again in 2004-2006, and 20 15-20 18, with the latest appearance in the fourth quarter of 2022. In other words, the Fed's interest rate hike may not necessarily make the dollar 100% appreciate, but it will probably lead to the appreciation of the dollar.
These are some of the contents of the Fed's interest rate hike and the appreciation of the US dollar. You can pay attention.