The People's Bank of China (PBOC) stayed put on rate hikes while Hong Kong followed suit with a raise after the Fed's increase. What does it all mean for currency trades?
It's the third time this year the Fed has raised interest rates, and all the signs are that there's another hike on the way.
US interest rates are now the highest they've been since October 2008. The quarter-point hike reflects an upbeat assessment of the US economy, despite escalating trade tensions.
China's central bank hasn't commented on the Fed's latest move, but it set the RMB daily midpoint fixing 71 basis points lower.
"The market didn't expect the PBOC to follow the Fed to raise interest rates. The market rates have already approached the policy rate, so another hike in policy rates may exceed the interest rate level in commercial banks," said Guo Jiayi, CIB Research Chief FX Analyst.
"In addition, RMB's value has been stabilizing after a variety of actions imposed by PBOC and we haven't seen any depreciation pressure. So it's not necessary to increase the reverse repo rate to hedge the currency pressure," said Guo.
Hong Kong market
The impact of the US rate rise might be felt more strongly in Hong Kong. Five banks in Hong Kong lifted term deposit rates on Wednesday ahead of the Fed's statement, while HSBC also leveled up its prime lending rate for the first time since 2006.
The value of the Hong Kong dollar has been depreciating against the US dollar since the end of last year, and had been holding above the 7.85 level since March. But the recent movement in Hong Kong's commercial banks has caused some surprising volatility in the Hong Kong currency.
"We probably would see some investment landscape to be a bit reshuffled in the HK market and raising the prime rate probably will benefit the HK insurance sector but would probably put more downward pressure on the property sector," said Jimmy Zhu, Fullerton Markets Chief Strategist.
"The markets say another US rate hike in December is almost a certainty. Fed officials saw the US economy on a sustainable growth trend, with unemployment well below the long term average and inflation close to the central bank's 2 percent target," said Zhu.