"You can't help it." The euro fell below parity against the U.S. dollar again, and the market's expectations for a slowdown in interest rate hikes began to cool down again. Under the hawkish remarks of many Fed rate hikes officials, the U.S. dollar index The momentum is overwhelming, and after more than a month it is once again approaching the 20-year high of 109.
Since the central bank lowered the MLF (medium-term lending facility) interest rate last Monday, the RMB has depreciated rapidly against the US dollar. After the LPR ( loan market quotation rate ) followed suit on the 22nd, the RMB depreciated further. On August 15, offshore RMB once fell nearly 700 points, approaching 6.82, the largest drop since the outbreak of this round of epidemic (March 2020). As of 12:47 on August 23, Beijing time, the U.S. dollar index was at 108.9410, USD/offshore RMB was at 6.8656, and USD/CNY was at 6.8493.
China Business News reported at the beginning of last week that a trader at a major state-owned bank said that pressure from a strong U.S. dollar is still there, domestic liquidity is unusually loose, recent economic data has been relatively weak, and pressure for RMB depreciation exists objectively. However, if the foreign trade data can still maintain the strong trend before July in the future, may be able to hedge the overvaluation of and continue to trade sideways near the current point. According to the reporter's understanding, most of the current year-end point forecasts for USD/RMB by foreign banks are between 6.7 and 6.95.
The U.S. dollar index is about to return to a 20-year high
23, the U.S. 10-year Treasury bond yield once again exceeded 3% overnight, and the U.S. dollar index approached 109. Previously, many Federal Reserve officials pointed out that in order to curb inflation, they will further actively raise interest rates in the future, driving the dollar to soar.
Earlier, St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly mentioned the need for further interest rate increases. Their comments indicate that a third consecutive 75bp interest rate hike is possible in September, and Kansas City Fed President Esther George also said that they will not stop tightening policy until they are "completely convinced" that inflation is falling.
As the previously announced U.S. CPI in July was lower than expected, it triggered market expectations for inflation to peak. The expectation of a 75BP interest rate hike in September once cooled to 50BP, which also caused the U.S. dollar index to fall back below 106. However, the CPI reading in July was still as high as 8.5%. Recently, a series of hawkish comments have cooled down the theory of peak interest rate hikes.
This week, investors are focusing on the upcoming annual meeting of global central banks in Jackson Hole, the United States. The theme of this three-day seminar is "Reevaluating Economic and Policy Constraints." Federal Reserve Chairman Powell will attend local time A keynote speech will be delivered at 10 am on Friday morning (10 pm on Friday, Beijing time). The annual meeting has always been regarded as an important meeting for Fed officials to signal policy changes. At present, what investors want to know most is how aggressively the central bank will raise interest rates in the future. Lukman Otunuga, senior research analyst at
FXTM, told reporters that the message conveyed by this seminar is particularly important now that the Federal Reserve no longer provides specific forward guidance and formulates monetary policy meeting by meeting. "Recently, the U.S. dollar has broken through several key levels with great momentum. What needs to be paid attention to is whether the market is already preparing for Powell's tough remarks, or is it just because of the summer market, the thin market trading highlights the long-term appreciation trend of the U.S. dollar?"
Other developed countries National currencies are falling
G10 Weakness in currencies also pushed the U.S. dollar index higher. The weakening of the euro is undoubtedly the biggest contributor. After all, the euro accounts for nearly 60% of the U.S. dollar index. At 23:00 Beijing time on August 22, the euro was trading at 0.9967 against the US dollar, having once again fallen below the 1:1 parity earlier on the same day.
Previously, Germany's CPI increased by 5.3% month-on-month in July, the largest increase since this data began to be collected in 1949. At the same time, the annual rate of increase reached an astonishing 37.2%. While this may increase pressure on the European Central Bank to raise interest rates again in September, it failed to boost the euro as investors became more worried about the risk of recession.
The energy crisis almost became the last straw for the euro zone. Relevant surveys show that economists currently predict that the possibility of the euro zone falling into recession in the next 12 months will rise to 60%, which is higher than the 45% in the previous survey and much higher than the 20% before the Russia-Ukraine conflict.As the largest economy in the European Union, Germany may enter an economic contraction as soon as this quarter. Last Friday, European natural gas prices closed at a record high for the second consecutive day. Last weekend, Gazprom announced that it would completely stop supply through the Nord Stream 1 natural gas pipeline within 3 days.
In addition to the euro, the pound also fell against the dollar. With UK inflation rising above 10%, the Bank of England has warned that the economy could slip into recession in the fourth quarter and could last more than a year.
The yen is even weaker. On Monday, the U.S. dollar/yen rose 0.40% to 136.43. The rise in U.S. bond yields pushed the U.S. dollar/yen to its highest level since July 28. At the same time, the weekly trend is expected to rise by more than 2%, hitting 6 Best weekly performance since March 10th. Japan's inflation in July rose by 2.6% year-on-year, hitting the highest point in nearly eight years and exceeding the Bank of Japan's 2% target for the fourth consecutive month.
"Despite the increasing price pressure, it is completely impossible for the central bank to raise interest rates or adjust the yield curve control policy (controlling the 10-year Treasury bond yield at 0, hereinafter referred to as "YCC")." Matt Simpson, senior analyst at Gain Capital Group Simpson told reporters. Bond traders tried to force the Bank of Japan to adjust its YCC policy in June this year, which prompted the central bank to buy huge amounts of bonds in response. The traders ended up injured, but the central bank successfully regained control of the 10-year bond yield. Inflation in Japan is still rising, but to a weaker extent than in other developed countries and within a reasonable deviation from the Bank of Japan’s own forecasts. In fact, according to the Bank of Japan's forecast, inflation will peak in the fourth quarter. Therefore, overall there seems to be no reason to expect the Bank of Japan to urgently adjust interest rates or YCC policies.
In addition, the Australian dollar, which is particularly sensitive to risk sentiment, has also fallen recently. As of 23:00 on August 22, Beijing time, it was reported at 0.6875. The Australian dollar has depreciated nearly 3% against the US dollar in the past week.
RMB short-term deposit depreciation pressure
In view of the widening inversion of the interest rate differential between China and the United States, the strengthening of the US dollar, and loose domestic liquidity, the RMB is under short-term pressure.
Wu Zhaoyin, director of macro strategy at AVIC Trust , previously told reporters that judging from indicators such as global inflation and the economic situation of major economies, the upward trend of the U.S. dollar has not ended. Corresponding asset prices, including stocks, commodities, and the RMB exchange rate, are under pressure.
HSBC has raised its USD/CNY forecast and now sees USD/CNY reaching 6.9 by the end of 2022 and 6.95 by mid-2023. The agency said, "Recently, USD/CNY has broken through the much-anticipated 6.8 mark. We believe this means that USD/CNY will be in a new higher range for the rest of this year and the first half of next year, such as 6.75~7.00."
However, HSBC also believes that stable yield differentials and fairer valuations indicate that this round of RMB depreciation will be milder than in the second quarter. China's economic growth is still expected to gradually recover in the second half of 2022, and as active fiscal stimulus and prudent monetary easing take effect, the economy is unlikely to contract sharply again as it did in the second quarter.
Barclays told reporters that the trend of the yuan depends on changes in exports. It is currently expected that USD/CNY will be at 6.9 in the third quarter and may return to 6.8 by the end of the year.
data shows that China's trade surplus reached US$78.75 billion in May, US$97.9 billion in June, and US$101.3 billion in July. This is the first time on record that my country's monthly surplus has exceeded US$100 billion, and continues to exceed US$100 billion. expected.
Xie Yunliang, chief macro analyst of Cinda Securities , told reporters that the future trade situation will still be the key to guiding the direction of the renminbi. In this regard, two factors are crucial, one is changes in price factors, and the other is changes in overseas demand. Over the past period of time, overseas price increases have also pushed up China's exports.
