The US dollar index rose sharply on Friday (June 10) that week, and is expected to rise for two consecutive weeks. The U.S. dollar index rose mainly because the market showed a pessimistic view on a slowdown in Europe and even the global economy, supporting the safe-haven demand for the U.S. dollar. At the same time, the expectation of a hawkish tone in the Fed resolution next week also supports the dollar.
In terms of other non-US dollar varieties, the euro has fluctuated and fallen back against the US dollar this week. The European Central Bank's interest rate hike guidance has made the market worried about the future prospects of the European economy. The pound fell against the dollar this week, with the British political crisis putting pressure on the pound. However, expectations for a rate hike by the Bank of England next week limited the pound's decline. The U.S. dollar rose against the yen in shocks this week, mainly benefiting from the strength of the U.S. dollar, but the Japanese government issued verbal intervention to limit the yen's decline.
Next week, the market will usher in the Federal Reserve decision and the Bank of England decision. At the same time, the United States will also release a series of important data such as retail sales. In addition, geopolitical situations, global epidemics and other focus events also deserve continued attention. Next, let’s take a closer look at the trends of several major currency pairs this week.
The U.S. dollar index fluctuated and climbed this week, mainly due to the market's concerns about the European economic outlook and the surge in demand for safe havens. At the same time, U.S. inflation continues to be high, and the expectation that the Federal Reserve will raise interest rates next week supports the U.S. dollar.
Chart: U.S. index daily chart trend
Although some investments Investors are hopeful that U.S. inflation may have peaked, but a recent rise in oil prices to a 13-week high has undermined that optimism and boosted the appeal of the safe-haven dollar. For the U.S. economy, a strong dollar is a mixed blessing. On the one hand, a strong U.S. dollar is good for imports, and Americans can purchase goods from other countries at lower prices, thus hedging inflation to a certain extent; on the other hand, the continued appreciation of the U.S. dollar is good for exporters or companies with large overseas sales. This is a major negative.
The Federal Reserve is scheduled to announce its interest rate resolution, policy statement and economic expectations next Thursday (June 16). Investors need to pay attention to this, which may affect the future trend of the US dollar. Market expectations for a hawkish tone from the Federal Reserve have increased. The market is pricing in at least a 50 basis point rate hike, according to CME Group's FedWatch tool.
New York Stock Exchange trader Timothy Anderson said that since the Federal Reserve issued a strong hawkish signal in November last year, the dollar has started to rise sharply. In March this year, the Federal Reserve fulfilled its promise and started to raise interest rates for the first time since 2018. Higher interest rates mean higher returns on U.S. dollar assets, which attracts global capital and provides upward momentum for the U.S. dollar. In addition, the situation in Ukraine suppressed European currencies and provided support for the US dollar. Any asset denominated in U.S. dollars has become more expensive in global markets, and it is worth noting that some multinational companies have given guidance during this earnings season, saying that further strength in the U.S. dollar will put pressure on their future earnings.
In addition, the market is paying attention to the fact that the U.S. CPI data in May hit a new high in more than 40 years. It is difficult to shake the Federal Reserve's aggressive hawkish stance. Specific data shows that the annual rate of U.S. CPI in May was 8.6%, a new high since December 1981, 0.3 percentage points higher than the expected value and the previous value; the annual core CPI rate in the United States in May was 6%, although it was lower than the previous value of 6.20 %, but 0.1 percentage points higher than expected.
analysis pointed out that soaring energy and food prices have pushed inflation close to the highest level in 40 years. One headwind holding back strong U.S. growth is high inflation, driven in part by low interest rates and government stimulus. The annual rate of U.S. inflation has risen sharply since the beginning of 2021, and inflation has persisted longer than policymakers expected. The Fed raised interest rates by 0.5 percentage point in May and is expected to consider a similar hike at next week's meeting.
Following the 1.5% decline in the U.S. gross domestic product (GDP) in the first quarter of 2022, the Federal Reserve Bank of Atlanta recently predicted that the U.S. GDP growth rate in the second quarter will be only 0.9%. In the context of inflation soaring, this not optimistic figure has once again triggered concerns about economic recession in American society.
Earlier data showed that the U.S. labor market is still very tight. In the week ending June 4, the number of initial jobless claims rose to a seasonally adjusted 229,000, the most since mid-January. It was expected to be 210,000. .
U.S. Treasury Secretary Yellen expressed her views on recession concerns. She believes that although U.S. energy prices are unlikely to fall in the short term and U.S. economic growth will slow down significantly, she insists that the United States will not fall into an economic recession.
Yellen pointed out that I don't think we will have a recession, consumer spending is very strong and investment spending is also very solid. I know people are nervous about inflation, that's true, but there's nothing to suggest...a recession is brewing.
Yellen once again defended the $1.9 trillion social spending bill signed by the Biden administration in March last year, which is regarded by Republicans and other opponents as one of the key reasons for high inflation in the United States. Yellen claimed that Biden 's bill was to save Americans from the suffering of high unemployment, and if she could go back to that time, she would not oppose Biden's policies.
JPMorgan Chase CEO Jamie? Dimon warned last week that the United States must prepare for an upcoming "economic storm." But Yellen said she has had talks with bankers from major Wall Street banks, including Dimon, who believe American families are in good financial shape. She also claimed that American households are surprisingly pessimistic about the economy, given that the country already has "the strongest labor market in the postwar period."
The euro has fluctuated and fallen back against the US dollar this week. The European Central Bank's interest rate hike guidance has made the market worried about the future prospects of the European economy.
Chart: Daily chart trend of the euro against the US dollar.
The European Central Bank maintained interest rates steady on the 9th on Thursday and announced that it will start raising interest rates in July. , but lacks details on plans to deal with financing fragmentation. Risks to the euro zone's economic growth are increasing day by day, and the market is doubtful about the European Central Bank's commitment to raising interest rates.
After years of ultra-loose monetary policy, the European Central Bank announced on the 29th that it will stop net asset purchases from July 1 and plans to raise interest rates by 25 basis points in July, paving the way for the first interest rate increase in more than a decade. Experts believe that the European Central Bank has taken an important step in the right direction, but it must guard against the risk of a debt crisis that may arise from raising interest rates.
The European Central Bank’s monetary policy decision is in line with economists’ general expectations. The German Chamber of Commerce and Industry said that although the European Central Bank's decision is not enough to eliminate imported inflation, if interest rates are not raised, the euro's exchange rate against the US dollar will become even weaker, exacerbating rising energy prices.
According to the European Central Bank's forecast, the euro area inflation rate will reach 6.8% in 2022, and will drop to 3.5% and 2.1% in 2023 and 2024 respectively, both exceeding the expected target of 2%. The agency earlier this year forecast inflation of 2.1% in 2023 and 1.9% in 2024.
Thomas?, economist at German investment company QC Partners? Altmann said that the European Central Bank's increase in inflation expectations has greatly increased the possibility of larger and longer-term interest rate hikes.
European Central Bank President Lagarde said at a press conference that day that the inflation rate in the euro zone was as high as 8.1% in May, mainly due to the surge in energy and food prices, and inflation is expected to remain high for a period of time. The European Central Bank is expected to raise interest rates again in September. If the medium-term inflation outlook persists or worsens, the rate hike will be appropriately increased.
Insiders warned that with interest rate hikes, some countries with high debt levels and slow economic growth may face debt risks, and European countries should be prepared for this. Some experts believe rising bond yields are unlikely to cause a new debt crisis in the short term. Federico expert at consulting firm Eurasia Group? Santer pointed out that European countries can intervene in the government bond market more targetedly to prevent new crises.
Lagarde also emphasized that once the spread of bond yields and of euro zone countries expands sharply, hindering the transmission of monetary policy to economic sectors, the European Central Bank will take action. She also said that if necessary, new tools would be developed to deal with it.
UBS Group UBS said on the 9th that although the Canadian dollar and the Australian dollar have room to rise further due to the tightening of monetary policy, the euro is not expected to benefit from the European Central Bank's tightening of monetary policy.
UBS Group believes that given the moderate economic growth prospects in the euro zone, the room for the euro's rise is likely to be limited.The European Central Bank is expected to raise interest rates by 25 basis points in July, September and December this year. Faced with the uncertainty of the Russia-Ukraine conflict and the prospect of interest rates turning from negative to positive, the European Central Bank will remain relatively cautious. Even if the European Central Bank says it is likely to raise interest rates by 50 basis points in July, there is little room for the EURUSD exchange rate to rise above 1.10.
UBS also believes that the global trend of tightening monetary policy looks set to limit the dollar's continued rise. As the Federal Reserve continues to tighten monetary policy, the U.S. dollar is still likely to see short-term gains and may continue to benefit from safe-haven demand brought about by the Russia-Ukraine conflict. In the current environment, commodity-related currencies such as the Australian dollar, New Zealand dollar , Norwegian krone and the Canadian dollar have the greatest upside potential, and these currencies will benefit from increased investment activity and an improving balance of payments. Huw Roberts, head of analysis at
QuantInsight, said: We knew that quantitative easing was coming to an end, but they themselves began to float the idea of developing special contingency plans to address the risk of fragmentation, but did not provide any details. Because they have been talking about contingency plans, the market is hoping for more information, more details on what they will do. It’s disappointing that no details were revealed.
Dominic Bunning, head of European foreign exchange research at HSBC Holdings , said: The foreign exchange market may start to pay attention to the deteriorating economic growth prospects of the euro zone, which may restrict the extent to which the European Central Bank can implement the interest rate hikes expected by the market.
ING foreign exchange strategist Francesco Pesole said that currently, European stock market trends and external risks have a greater impact on the short-term trend of the euro against the US dollar than short-term interest rate differentials. Key reasons for the euro's reversal against the dollar on Thursday included the underperformance of other euro-linked assets such as stocks and the widening gap between 10-year Italian and German bond yields. Goldman Sachs said that it now expects the European Central Bank to raise interest rates by 25 basis points in July, followed by 50 basis points in September and October, and the rate hike in December will be narrowed to 25 basis points.
The British pound fell against the U.S. dollar this week, mainly due to the strong U.S. dollar and the British political crisis that put pressure on the British pound. However, the expectation of an interest rate hike by the Bank of England next week limits the decline of the pound
Chart: Daily chart trend of sterling against the US dollar
British Prime Minister Although Johnson survived the no-confidence vote this week, there are concerns about the instability of the British political situation. Putting pressure on sterling.
Conservative MPs held a secret vote on Monday night to decide whether Johnson, who has been embroiled in the "partygate" scandal, will continue to serve as prime minister. According to regulations, Johnson needs the support of more than half of the Conservative Party MPs, that is, at least 180 people, in order to continue to be in power. In the end, Johnson narrowly passed the test. The voting results showed that the ratio of votes for and against was 211:148, that is, more than 40% of MPs voted against.
According to the rules, he will not face another no-confidence vote in the next year. Although Johnson has temporarily retained his position as leader of the ruling party and British Prime Minister, Johnson's status within the party has been greatly affected. Such a vote is never a good thing for leaders. Divisions and opposition within the ruling party may trigger more political unrest and create new uncertainties.
In addition, the pound continues to be affected by economic data and expectations of interest rate hikes by the Bank of England. Market participants are still worried about the outlook for the British economy, with high inflation exacerbating the risk of stagflation. UK inflation jumped to 9% in April, the highest level since 1982, as electricity, natural gas and motor fuel prices rose.
Signs of further intensification of inflation may continue to undermine confidence in the UK's economic recovery and limit the pound's upside. In terms of economic data, investors focused on the final value of the services PMI in May to further understand the health of the British economy.
Despite the unstable economic situation, the Bank of England is expected to continue to tighten policy and announce a 25 basis point interest rate hike at the monetary policy meeting on June 16.
A strategist at UOB pointed out that I had previously been inclined to believe that the Bank of England would suspend interest rate increases after the policy rate reached 1.00%. However, the latest vote by the People's Bank of China's Monetary Policy Committee was more dovish than we expected, so another 25 basis point rate hike in June is now expected.As for the asset sale, we'll probably have to wait until at least closer to the actual operation to get more information. Asset sales are currently expected to begin in the fourth quarter of 2022 at a cost of £5 billion per month.
Money market pricing shows that the Bank of England will raise interest rates by a cumulative 100 basis points through September, almost twice what was expected six months ago. This reflects market expectations that the Bank of England will raise interest rates twice by 25 basis points and once by 50 basis points in the next three policy meetings.
That would be the biggest rate hike since the Bank of England gained independent policymaking authority in 1997, signaling that policymakers are facing growing pressure to speed up the tightening cycle that began late last year.
At the same time, other major central banks, including the Federal Reserve and the Bank of Canada, have raised interest rates by an unusually large 50 basis points. Policymakers around the world are grappling with rising prices, and in addition to supply chain issues, the war in Ukraine has made supply shortages even worse.
The U.S. dollar rose against the yen in shocks this week, mainly benefiting from the strength of the U.S. dollar. However, the Japanese government issued verbal intervention to limit the decline of the yen.
Chart: Daily chart trend of the U.S. dollar against the yen.
The U.S. dollar continued to maintain a strong upward trend against the yen this week. The currency pair's move has sparked concern among Japanese officials.
html On June 10, the Japanese Ministry of Finance, the Bank of Japan and the Financial Services Agency issued a joint statement stating that they were "concerned" about the recent rapid decline of the yen. The statement also stated that the Japanese authorities will take appropriate actions on foreign exchange when necessary and will communicate closely with other countries; the Japanese government and the Bank of Japan will cooperate closely to pay close attention to foreign exchange trends and their impact on the economy and prices; stable fluctuations in foreign exchange reflect fundamentals It is very important to avoid rapid fluctuations in the Japanese yen exchange rate.Generally speaking, the Japanese government's intervention in the yen is usually divided into two stages: "verbal intervention" and open market intervention. Determined by the Bank of Japan and the Ministry of Finance. Among them, Japan's Ministry of Finance will decide whether to intervene in the market, while the Bank of Japan will implement specific operations.
This is usually preceded by a series of carefully choreographed "verbal warnings" from relevant officials. If they say the government is not ruling out any options, or is prepared to take decisive action, they usually send a signal that puts markets on high alert that intervention may be imminent.
Against the background of the divergence of monetary policies between the Japanese and American central banks, many investors are still interested in shorting the yen. Brian Gould, a veteran with foreign exchange market experience, said: Orders to sell the yen are coming in 24 hours a day. We have seen a significant increase in volume over the past few days, with people still looking to go long USD/JPY at 20-year highs.
Some analysts pointed out that the days of shorting the yen and making money may be gone forever. While foreign exchange markets continue to focus on the policy divergence between the Bank of Japan and Western central banks, the days of shorting the yen may be over.
From the perspective of trading positions, CFTC data shows that fund managers’ net short positions on the yen have reached unprecedented heights. Although leveraged fund still has room to further short the yen, HSBC proprietary trading data shows that 4 Speculative long USD/JPY positions have begun to decline in March and May.
However, Bank of Japan Governor Kuroda Haruhiko said that like other major central banks, the Bank of Japan's monetary policy does not target the exchange rate . Haruhiko Kuroda said in a speech that the Bank of Japan must continue to support economic recovery from the epidemic through monetary easing policies. According to it, so far, monetary easing policy has only been half successful, and the central bank has not yet achieved its goal of stabilizing inflation. This may take some time, but it is very certain that the Bank of Japan can achieve its inflation target.
Jane Foley, a strategist at Rabobank in London, said: The cost of verbal intervention is very low, and actual intervention would not only violate Japan's agreement with other G7 countries to allow the market to set exchange rates, but also conflict with the Bank of Japan's ultra-loose monetary policy. The impact is in the opposite direction. As long as the Bank of Japan maintains ultra-low interest rates and yield curve control, it will be difficult for the yen to strengthen unless U.S. yields fall.
The U.S. dollar has risen sharply against the Canadian dollar this week, mainly due to the strength of the U.S. dollar. Expectations of a rate hike by the Bank of Canada have limited the currency pair's rise.
Chart: Daily chart of the U.S. dollar against the Canadian dollar.
Market expectations for a substantial interest rate hike by the Bank of Canada have increased. Bank of Canada Governor MacCallum said on Thursday that inflation will determine how quickly interest rates rise and reiterated that the bank may need to raise interest rates multiple times in a row or consider taking steps greater than 50 basis points. Getting inflation back to its 2% target is the central bank's top priority, although it wants to avoid cooling the economy too much.
McCallum said, "What we want to show is that we may need to do more... to get inflation back to target, or we need to move faster, or we need to take greater measures. The most important factor is indeed inflation." Prospects. Domestic demand needs to be more aligned with supply without cooling the economy too much. We don't want to kill demand. We want to get rid of excess demand, excess.
In a report released earlier, the bank said that the Canadian financial system faces increased risks from highly indebted households, especially the increase in people buying houses at high prices and with high leverage. These people are now vulnerable to rising interest rates. The central bank is paying particular attention to the fact that more Canadian households are saddled with high levels of mortgage debt.
The bank last decided to raise its benchmark interest rate to 1.5% from 1.0% on June 1 and said it was prepared to act "more forcefully" if needed to curb inflation, which is now at a 31-year high.
In addition, on June 9, local time, the Bank of Canada released a review report on the financial system, warning that soaring inflation will lead to economic risks for households with high debt.
Average house prices in Canada increased by 53% between April 2020 and April 2022. The Bank of Canada is concerned that recent home buyers do not have enough equity in their homes to withstand a "significant price correction" and "will face greater financial stress when they pay their mortgages at higher interest rates." Data from the Bank of Canada shows that in In the fourth quarter of 2021, 22% of investors purchased homes with mortgages, up from 19% in 2019.
This article comes from Huitong.com
