In the early trading of the Asian market on Friday (September 9), Beijing time, the dollar index fell slightly, and it is currently trading around 109.58. The dollar rose against the yen on Thursday, climbing the ninth of the past 10 trading days after Fed Chairman Powell reiterated that the Fed will continue to raise interest rates to curb sharp inflation and warned that monetary policy cannot be relaxed too early.
The dollar against the Japanese yen has been the most sensitive currency pair to U.S. interest rate expectations in the past few months. The exchange rate hit a 24-year high of 144.99 on Tuesday, then fluctuated at a high level, closing down 0.17% on Thursday at 143.84.
On Thursday, the European Central Bank raised interest rates by 75 basis points, allowing deposit rates to exceed 0% for the first time since 2012. The euro initially rose past parity levels, but then weakened as Powell spoke.
Fed officials will soon enter the silent period before the September 20-21 meeting. Powell said at a meeting held by the Cato Institute that the Fed needs to stick with it until the work is completed. He also said the Fed is “firmly committed to” fighting inflation. "I don't believe the dollar has reached its peak. Powell did not add anything new to his Jackson Hall speech or vice chairman Breener's speech, but I expect the dollar to consolidate next week's consumer price index (CPI) ."
U.S. interest rate futures market expects the possibility of the Fed raising another 75 basis points at this month's meeting, which will raise the federal funds rate to the 3.0%-3.25%.
Chicago Fed Chairman Charles Evans said Thursday that the Fed "very likely" to raise interest rates by 75 basis points at his September meeting, and he tends to be dovish in monetary policy debates.
Barclays said in its latest research report that the Fed is expected to raise interest rates by 75 basis points this month. The bank also pointed out that if the CPI data in August is less than expected, the Fed may raise interest rates by 50 basis points. The
USD index once hit a high of 110.80 since June 2002 on Wednesday, closing up 0.08% on Thursday at 109.65.
Euro closed down 0.07% against the US dollar on Thursday at 0.9998. The European Central Bank said it is expected to continue raising interest rates to curb demand, and fighting inflation is the top priority. "We expect further rate hikes as inflation remains too high and may remain above our target for a longer period of time," said ECB President Lagarde . She added that policymakers agreed to raise rates by 75 basis points on Thursday.
yen was particularly hit by the recent strengthening of the dollar, as the Bank of Japan remains the only dovish central bank.
Japanese finance minister Masato Kanda said on Thursday that Japan is ready to take action in the forex market and will not rule out any measures to deal with the "significant excessive fluctuations" seen in the recent yen trend .
traders are all paying attention to whether Japan will intervene to boost the yen. But Chandler of Bannockburn believes that Japan is unlikely to intervene in the market. He said: "Japan knows that the United States does not approve of intervention. Although (US Secretary of Treasury) Yellen doesn't talk much about this issue, the Fed's strong dollar policy exists. The strong dollar is part of the tightening of financial conditions."
pound pound fell against the dollar on Thursday after the death of Queen Elizabeth in the UK. Queen Elizabeth is the longest-reigning monarch in Britain and has represented the image of the British country for 70 years. The pound closed down 0.29% against the dollar on Thursday at 1.1501.
In addition, the probability of the Bank of England raising interest rates by 75 basis points next week dropped below 50%, which also put pressure on the pound.
Thursday interest rate futures pricing shows that financial market estimates that the Bank of England's chance of raising interest rates by 75 basis points next week has dropped below 50% . Interest rate swap prices show that the Bank of England's 50 basis points rate hike to 2.25% on September 15 is 52.9%, and the odds of 75 basis points rate hike are 47.1%, down from more than 80% earlier this week.
Friday key data and major eventsPreview
Big events that need to be paid attention to on Friday: Bank of England releases inflation level survey report, European Central Bank Governor Lagarde makes a speech, and Chicago Fed Chairman Evans speaks on the economy.
Summary of institutional views
1. Wells Fargo : The euro may fall further against the US dollar in the near future
① Wells Fargo analysts believe that the ECB’s statement on Thursday and the remarks of its president Lagarde show that there will be more rate hikes in the future. We now predict that the ECB will raise interest rates by another 50 basis points in October and December, raising deposit rates to 1.75% by the end of this year, and the final interest rate will be raised by 25 basis points to 2.00% at the beginning of 2023; after the meeting, the euro fell across the board, while the dollar was boosted by speeches by Federal Reserve Chairman Powell. The euro will fall further against the dollar in the near future as the Federal Reserve further tightens monetary policy and the less optimistic economic outlook in the euro zone. However, we also expect some rebound in the euro next year, as the European Central Bank's stable monetary policy outlook will lead to a stronger euro against the dollar, and the dollar may be affected by the Fed's expectations and final implementation of monetary policy by the end of 2023
2. Wells Fargo: AUD weakness will continue until the end of 2022
① Wells Fargo analysts expect RBA to raise interest rates further in the near future, but the rate hike will slow down, which will suppress the Australian dollar. The Australian dollar faces downside risks against the US dollar. It is expected that the Australian dollar will weaken by the end of 2022, and then rebound as progress in 2023;
② It is expected that the RBA will raise interest rates at a rate of 25 basis points starting in October, and as the Fed maintains its hawkish policy, the RBA's rate hike rate should lag behind the Fed and will not exceed the current expected monetary tightening in the financial market. This should cause the Australian dollar to weaken against the US dollar until the end of this year or early next year
3. After the ECB's interest rate decision, Goldman Sachs recommended shorting the euro against Swiss franc
① After the ECB's interest rate hike by 75 basis points, Goldman Sachs reiterated its optimism about the Swiss franc, saying that it is time to short the euro against Swiss franc. The ECB described its rate hike as a "front" rate hike, which shows that its support for the euro has been restricted;
② Goldman Sachs foreign exchange analyst Michael Cahill said the ECB's decision and forward guidance should be a strong signal for the Swiss National Bank, especially after the ECB's hawkish speech in the past few weeks caused Swiss franc to weaken slightly. The Swiss National Bank is likely to want to take action to stop the depreciation of franc , and the franc could also benefit from rising credit concerns as the ECB decides to tighten policies faster to cope with a severe supply shock. Analysts said it is recommended to short the euro against the Swiss franc, with a target of 0.955, with a stop loss at 0.985
4. Commerzbank : The yen has almost no hope of recovery in the short term
① The Bank of Japan and the Ministry of Finance have no choice but to threaten to interfere with the weak yen. However, as long as the Bank of Japan maintains its monetary policy and other countries continue to normalize, these interventions will remain just a drop in the ocean;
② In the short term, the yen has almost no chance of recovery - except for a brief price adjustment. If the yen wants to recover, it can only rely on other , central bank to consider cutting interest rates when inflation momentum weakens. This situation can only happen next year. The yen remains the worst-performing currency this year.
This article is from Huitong.com
