In 2022，the RMB exchange rate (bilateral exchange rate against the US dollar，unless otherwise specified) shows two-way and wide fluctuations due to the divergence of the US and China monetary policy and the interest rate spread turning negative. From last March to November，the RMB depreciated from 6.30 to around 7.30 within eight months，which was the fastest and deepest adjustment since the currency reform in early 1994. Since November 2022，the RMB has rebounded rapidly with the optimization of domestic pandemic control and regulatory policies，recovering below 7.0 again in early December within less than three months.

Followed by the rebound，the market consensus was that as the pandemic eased and the Chinese economy reopened，the RMB exchange rate would strengthen in 2023. However，unexpectedly after a lapse of five months，the RMB exchange rate dropped through 7.0 again in mid-May 2023，and further fell to 7.20 by the end of June，approaching last year’s low (see Figure 1). Should we be worried about the adjustment? And how will the RMB perform in the second half of 2023?

Three Common Misreadings of RMB Exchange Rate Fluctuations