Federal Reserve Chairman Powell was completely bewildered, feeling as if he had been hit by a triple whammy.

Firstly, the European Central Bank announced a rate cut, which should have been bullish for the US dollar, but unexpectedly, the dollar fell instead.

Additionally, earlier this month, the Japanese Prime Minister stated that there would be no interest rate hike, but unexpectedly, less than half a month later, the Bank of Japan began discussing the possibility of raising interest rates.

Thirdly, the US has been continuously creating expectations in the hope of preventing capital inflows into China, but unexpectedly, China countered with its own strategies, and the A-share market once again saw a significant rise, with foreign capital pouring in again.

What exactly is going on?

On Thursday night, the European Central Bank suddenly announced a rate cut of 25 basis points, which should have been favorable for the US dollar's trajectory, as the rate cut made the interest rates in the Eurozone significantly lower than the US federal interest rates, widening the interest rate differential by 25 basis points.

However, unexpectedly, after making this rate cut decision last night, the US Dollar Index experienced a noticeable rapid decline.

At the same time, the euro's exchange rate against the US dollar, which was cut, actually rose, currently standing at 1.0838.

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Another factor that is suppressing the US dollar is the possibility of Japan raising interest rates.

When the newly appointed Prime Minister, Ishinabe, took office, he ingratiatingly stated that the Bank of Japan would not raise interest rates in the short term, which allowed the US to breathe a sigh of relief.But it is unexpected that now Japanese central bank officials have started intensive discussions on the possibility of future interest rate hikes, and have repeatedly indicated that inflation data has shown that Japan has completely shaken off deflation. Currency normalization is an inevitable trend.

Although the yen has continued to fall in recent days, even breaking through 150 at one point, if interest rates are raised, it is very likely that the yen will rise sharply, just like it did at the end of July, which will put a lot of pressure on the US dollar index.

Taking advantage of this opportunity, the Chinese yuan has also launched a counterattack. Yesterday, the offshore exchange rate of the yuan once reached 7.1470, but it has now returned to 7.1165, with the maximum increase in the range reaching 300 points.

At the same time, A-shares also rose sharply on Friday, with the ChiNext index rising by as much as 7.95%, and the total turnover exceeding 200 billion yuan.

So, after years of currency wars, has China already won?

Many people do hold this view, especially after the Federal Reserve not only began to lower interest rates but also lowered them by 50 basis points at one time.

However, finance is the core of the United States, and the US dollar is its foundation. The United States cannot play a leading role globally with manufacturing alone.

Therefore, the United States may temporarily compromise, but it will never completely give up this financial war.

Not long ago, at a US Treasury meeting, Federal Reserve Chairman Powell emphasized in his video speech that he hoped the Federal Reserve's balance sheet would be as small as possible.

Perhaps at this time, everyone realized that although the United States has started to lower interest rates, the action of shrinking the balance sheet is still ongoing.From Powell's speech, it can be inferred that not only will the balance sheet reduction not stop, but it will continue.

This implies that even if the US dollar enters a rate-cutting cycle, monetary tightening will still be achieved through balance sheet reduction to maintain the strength of the US dollar.

Previously, the Federal Reserve significantly lowered the target rate by 50 basis points on its first rate cut, possibly aiming to lure other countries' central banks to follow suit with substantial rate cuts.

Now, the European Central Bank's rate cut of 25 basis points may be in line with the Federal Reserve's expectations.

We should be aware that the Federal Reserve may stop cutting rates at any time in the future and even begin to raise rates in the opposite direction, thereby widening the interest rate differential with other currencies.

This can not only curb the outflow of US dollars but may also trigger a new round of capital inflows.

The US dollar index has not fallen but risen since the rate cut in late September, reflecting this trend.

However, after adjustments, China's A-shares have now seen a significant rise, boosting confidence, and a trading volume of over two trillion yuan also indicates a large influx of funds, which the US cannot prevent.

The fortunes of China and the US may have already reversed.