Group 1 - The interbank foreign exchange market showed stable trading with an average daily transaction volume of $208.2 billion in June, a year-on-year increase of 15.7% [2] - The average daily trading volume of the RMB foreign exchange market was $152.4 billion, up 8.9% year-on-year, while foreign currency trading grew over 30% [2] - The US dollar index experienced fluctuations, initially rising and then declining, ending the month at 96.77, a depreciation of 2.68% [3] Group 2 - The RMB exchange rate showed a steady increase, fluctuating between 7.17 and 7.19, with a month-end value of 7.1656, appreciating by 0.94% [4] - The CFETS RMB exchange rate index fell to its lowest level since 2021, closing at 95.35, a cumulative depreciation of 0.64% for the month [4] - The offshore and onshore exchange rates continued to align closely, with the average daily deviation being minimal [5] Group 3 - The foreign exchange market saw a shift towards net selling, with an average daily net selling of $8.51 million, an increase of $5.84 million from May [6] - The market sentiment index rose to 62.78, slightly above the historical average, indicating a stable trading environment [6] Group 4 - The implied volatility of foreign exchange options decreased, with the average daily transaction volume reaching $8.28 billion, a 6.12% increase from the previous month [7] - The short-term implied volatility for the RMB against the USD fell from 3.8% to around 3.5% [7] Group 5 - The interest rate differential between China and the US continued to narrow, with the 10-year US Treasury yield dropping to 4.23% by month-end [8] - The 1-year swap points increased to -1866 basis points, the highest in nearly eight months, indicating a shift in market dynamics [8][9] Group 6 - The US dollar liquidity remained loose, with the domestic dollar financing costs showing a clear advantage [10] - The overnight interest rate differential between domestic and foreign markets remained negative, reaching a new high of -18 basis points by month-end [11]

Core Viewpoint - The overall operation characteristics of the RMB foreign exchange swap and options market in the first half of 2025 show a rising trend followed by a range-bound fluctuation, with the one-year swap price fluctuating between -2400 to -1900 pips. The actual volatility of the RMB exchange rate has increased, while the implied volatility of at-the-money options has shown a phased trend but remained stable in trading center. In the second half of 2025, the narrowing of the China-US interest rate spread is expected to drive a rebound in the swap curve, while the implied volatility in the RMB options market is likely to remain low [1]. RMB Foreign Exchange Derivatives Market Review RMB Swap Market Review - In the first half of 2025, the RMB foreign exchange swap market experienced an initial upward trend followed by a range-bound fluctuation, with the one-year swap points trading between -2400 to -1900 pips [2]. - The first phase from the beginning of the year to mid-March saw a rapid rise in one-year swap points from -2400 pips to -1900 pips, driven by bearish sentiment towards the US dollar and US Treasury yields, alongside improved international balance of payments and positive expectations for China's economic recovery [3]. - The second phase from late March to the present has seen a gradual decline in upward momentum, with one-year swap points oscillating around -2050 pips, influenced by the US's unexpected tariff and fiscal policy developments [4]. RMB Options Market Review - In the first half of 2025, the actual volatility of the RMB exchange rate increased, with the implied volatility in the RMB options market showing a "pulse" trend but maintaining stability in trading center [5]. - The first quarter saw a moderate trend in implied volatility, with the USD/CNY spot exchange rate fluctuating between 7.17 and 7.35, reflecting a significant appreciation of the RMB [6]. - The second quarter experienced a sharp rise in implied volatility due to increased tariff pressures, with the RMB reaching a historical high of 7.35 against the USD, followed by a decline in volatility as the market stabilized [6]. Outlook for the RMB Foreign Exchange Derivatives Market in the Second Half of 2025 RMB Swap Market Outlook - The RMB swap market is expected to see a narrowing of the China-US interest rate spread, driven by improved economic data and a stable domestic interest rate environment [7]. - The anticipated narrowing of the interest rate spread could lead to a rebound in the swap curve, with theoretical swap points around -1700 pips based on current short-term rates [8]. RMB Options Market Outlook - The RMB is expected to maintain low implied volatility in the second half of 2025, with external factors such as tariff disputes being the primary source of pressure [9]. - The overall improvement in the domestic economic environment is likely to support the RMB, with foreign investment in RMB assets increasing, contributing to a stable exchange rate [10].

Group 1 - The interbank foreign exchange market showed stable trading, with the average daily trading volume of the RMB foreign exchange market increasing by 12.59% year-on-year to $1580.99 billion in May, despite a 2.73% month-on-month decline [2] - The US dollar index experienced a slight depreciation, closing at 99.44 at the end of the month, reflecting a 0.2% decline for the month, influenced by weakening US inflation and trade policy uncertainties [3][4] - The People's Bank of China implemented a reserve requirement ratio cut and interest rate reduction, contributing to a strengthening of the RMB against the USD, with the RMB closing at 7.1953, appreciating by 0.94% for the month [4] Group 2 - The offshore and onshore RMB exchange rates began to converge, with the average daily onshore-offshore exchange rate difference being positive at 22 basis points, indicating a market expectation of RMB appreciation [5] - The implied volatility of RMB foreign exchange options showed a decline, with the average daily trading volume reaching $77.99 billion, indicating a stabilization of market sentiment [6] - The interest rate differential between China and the US widened slightly, with the 10-year US Treasury yield reaching a three-month high of 4.58% before retreating to 4.41% by month-end [7] Group 3 - The overall liquidity of the US dollar market remained loose, with the overnight interest rate in the domestic market declining to 4.30%, while the SOFR fluctuated around 4.35% towards the end of the month [8][9] - The domestic and foreign dollar overnight interest rate differential turned negative by month-end, reflecting a shift in market dynamics [9]