The Federal Reserve's 25-Basis-Point Rate Cut: Impact on the Dollar, RMB, Gold, and Bitcoin A Deep Dive and Future Outlook

The Federal Reserve's 25-Basis-Point Rate Cut: Impact on the Dollar, RMB, Gold, and Bitcoin A Deep Dive and Future OutlookIn the early hours of December 19th (Beijing time), the Federal Open Market Committee (FOMC) of the Federal Reserve announced a 25-basis-point cut to the federal funds rate target range, bringing it to 4.25%4

The Federal Reserve's 25-Basis-Point Rate Cut: Impact on the Dollar, RMB, Gold, and Bitcoin A Deep Dive and Future Outlook

In the early hours of December 19th (Beijing time), the Federal Open Market Committee (FOMC) of the Federal Reserve announced a 25-basis-point cut to the federal funds rate target range, bringing it to 4.25%4.5%. This marked the third consecutive rate cut since September, totaling 100 basis points for the year. However, the Fed's signaling suggested a more cautious approach to future rate cuts, leading to a strengthening dollar and declines in non-US currencies, gold, and Bitcoin. This move has sparked widespread market attention, warranting a thorough analysis of its impact on global financial markets, especially the RMB exchange rate, gold prices, and Bitcoin's trajectory.

The Fed's Slowdown in Rate Cuts: A Hawkish Turn and Market Reaction

While the 25-basis-point cut aligned with market expectations, the Fed's forward guidance, dot plot, and Chair Powell's statements exhibited a decidedly hawkish tilt, exceeding market anticipations. Morgan Asset Management interpreted the statement as suggesting not only a slower pace of future rate cuts but also potentially smaller cuts. The closely watched dot plot indicated the Fed expects only two rate cuts in 2025, down from the four predicted in September. Four Fed officials even projected a rate cut of 25 basis points or less in 2025.

Powell described the December rate cut as "the right thing to do in a challenging situation," emphasizing a more cautious approach to future policy rate adjustments. He explicitly stated that whether the Fed cuts rates in 2025 will depend on future data, not current projections, and that further cuts would be considered only after inflation improves.

This hawkish shift resulted in a more cautious stance on future rate cuts, leading to a stark contrast in the dollar's performance against non-US currencies compared to previous rate cuts. In September, the Fed implemented its first significant rate cut in four years (50 basis points); this, along with signals of a narrowing US-China interest rate differential, boosted the RMB exchange rate, with the offshore RMB briefly reaching around 7.08 against the dollar. However, on December 19th, the US Dollar Index surged, reaching a high of 108.13; non-US currencies fell collectively, and the offshore RMB fell below the 7.32 mark. By 5 PM that day, the offshore RMB was trading at 7.3088 against the dollar, and the onshore RMB at 7.2977.

Gold prices mirrored the RMB's trajectory. The "hawkish rate cut" caused a significant drop in international gold prices, with spot gold briefly falling below $2600 per ounce. However, by December 19th (Beijing time), spot gold prices rebounded, rising from an opening price of $2587.5 per ounce to around $2620. Zhou Maohua, a macro researcher at the Financial Market Department of China Guangfa Bank, pointed out that the overnight sell-off in US stocks and bonds, the strong rebound in the US dollar, and the pressure on commodities like gold were unsurprising reactions. The primary reason was the Fed's signal of a slower pace of rate cuts, leading to market concerns that a high-interest-rate environment could negatively impact the US economy, tightening financial conditions and triggering sell-offs in overvalued US equities and other assets.

RMB Exchange Rate: Resilience and Challenges Coexist

Looking ahead, analysts generally believe the volatility caused by the Fed's rate cut will not persist. Regarding the RMB exchange rate, its long-term trajectory is influenced by multiple factors, including the resilience of China's economic growth, the gradual implementation of proactive policies, and ample foreign exchange reserves. These factors provide solid support for maintaining the RMB exchange rate at a broadly stable and reasonable equilibrium level.

Wang Qing, chief macro analyst at Orient Asset Management, noted that the slowdown in the Fed's rate cuts next year could support the US Dollar Index, potentially leading to some passive depreciation pressure on the RMB. However, fluctuations in the US Dollar Index are the result of multiple factors, with Fed monetary policy changes being just one influence. For the RMB's 2025 trajectory, the most important influencing factors may not be changes in the Fed's rate cut pace, but rather the impact of the new US administration's trade policies and the effectiveness of domestic counter-cyclical adjustment policies.

Zhou Maohua believes that while the US-China interest rate differential will experience some short-term volatility, the policies of the two countries are moving in the same direction. Considering the rate cut magnitude, the Fed's future rate cuts will likely exceed those in China, leading to a gradual narrowing of the interest rate differential. It's noteworthy that the Central Economic Work Conference emphasized "maintaining the basic stability of the RMB exchange rate at a reasonable equilibrium level." Wang Qing stressed that this doesn't imply maintaining a fixed RMB-to-dollar exchange rate, but rather maintaining the basic stability of the CFETS and other major RMB exchange rate indices, in line with changes in economic fundamentals. Furthermore, should the RMB exchange rate deviate sharply from its fundamentals, regulatory authorities will promptly intervene with various tools to stabilize the exchange rate. History shows these policy tools can effectively guide market expectations and prevent excessive exchange rate fluctuations.

Zhou Maohua further stated that the Fed is still in a rate-cutting cycle, while the RMB exchange rate has significantly increased its flexibility, and China's policies are independently driven by its own circumstances, maintaining its macroeconomic policy independence. The impact on the domestic stock market is also limited. While volatility in overseas markets may affect sentiment in the domestic market, the fundamental determinants of the domestic stock market still rest on domestic economic fundamentals and policy measures. Currently, China's economy continues to show steady recovery, and prices are rising moderately. As the effects of China's comprehensive macroeconomic policies gradually unfold, consumption and domestic demand are expected to recover at a faster pace.

Gold Prices: Support for Long-Term Upward Trend Remains

Regarding gold prices, analysts also generally believe that the volatility from the Fed's rate cut will be short-lived. In the long term, gold prices are subject to various factors including the global economic situation, inflation expectations, geopolitical conditions, and investment demand. Wu Zewei, a researcher at Xingtu Financial Research Institute, stated that considering the significant uncertainties in the US economy, the Fed remains in a rate-cutting cycle, and with Trump's potential return to office and his openness to rate cutspotentially even through a "shadow Fed chair plan"the rate cuts next year may exceed expectations. Trump may intervene in the Israeli-Palestinian conflict, and his external tariffs could trigger retaliatory measures from other countries, potentially increasing global geopolitical risks. Additionally, the People's Bank of China has resumed gold purchases after a period of inactivity, and the wave of global central bank gold accumulation is far from peaking. These factors will likely support a long-term upward trend in gold prices.

Bitcoin: Strategic Implementation Obstacles and Long-Term Potential

Powell's comments on Bitcoin during the post-FOMC press conference drew market attention. "We can't hold Bitcoin. The Federal Reserve Act specifies what we can own, and we have no intention of seeking to change the law. That's for Congress to consider, but the Federal Reserve is not seeking to change that," he said, adding that the Fed doesn't intend to add Bitcoin to its balance sheet.

Trump previously pledged to implement policies favorable to the cryptocurrency industry upon returning to office and considering the establishment of a Bitcoin strategic reserve. The Fed's stance clearly contrasts with previous market optimism. Yu Jianing, co-chair of the Blockchain Special Committee of the China Communications Industry Association and honorary chairman of the Hong Kong Blockchain Association, believes this could have a cooling effect on market sentiment in the short term, as some investors may have anticipated that Bitcoin would gradually receive higher-level institutional endorsement. On December 19th, the price of Bitcoin briefly fell below $10,000 per coin, marking its largest single-day drop since August.

However, Yu Jianing also points out that Powell's statement reveals another signal: although the Fed cannot directly hold Bitcoin, its perception of Bitcoin is shifting from complete disregard to passive acknowledgment. Especially in the current global macroeconomic environment, decentralized assets are increasingly viewed by more countries and institutions as reserve and risk-mitigation tools. This trend may continue to reinforce Bitcoin's "digital gold" attributes in the long term. Furthermore, Powell's direct response to Bitcoin means that, as an emerging asset, Bitcoin has moved from the fringes to the realm of mainstream policy discussions, which is undoubtedly a significant psychological signal.

Looking ahead, while Trump has promised policies "favorable to the digital asset industry" and plans to create a new White House position related to cryptocurrencies and nominate Bitcoin supporters, the implementation of such policies presents both opportunities and significant challenges. Yu Jianing analyzes that Trump's policy commitments send a clear signal to the market that the US may relax regulations on the digital asset industry, boosting technological innovation and capital inflows. However, the decentralized nature of digital assets as non-sovereign assets creates an inherent conflict with traditional financial systems and government regulatory objectives. Core regulatory agencies such as the US Treasury Department and the Federal Reserve maintain a long