This week, the dollar index fell back and turned to a decline after hitting a new high of 110.80 since mid-June 2002, and closed down again after three weeks. It has now fallen by nearly 0.9% to around 108.61, indicating that there is obvious resistance around the 110 integer. Federal policy meeting is approaching, and there is demand for adjustment in the market.
Euro against the US dollar rebounded sharply after refreshing its low to 0.9863 since early December 2002, and is currently up 1.35% to 1.0090. The ECB raised interest rates by this week by 275 basis points, the single rate hike hit a new high since 1999, and said it will continue to raise interest rates in the next few meetings.
pound rose 0.84% against the US dollar to 1.1608, but hit a new low since 1985 to 1.1404. The outlook for UK debt is worrying, and Bank of England policymakers failed to strengthen more radical rate hike expectations when testifying in the UK Parliament’s Finance Committee.
Fundamentals cheer the Fed up
Fed's decision-making relies on data performance, and it is not surprising that the US dollar showed obvious adjustments before the Fed's policy meeting. But key fundamental factors continue to bring positive responses, encouraging the Fed to continue its radical hawkish attitude, and the Fed is expected to raise interest rates for the third consecutive 75 basis points at its policy meeting this month.
The American Institute of Supply Management (ISM) survey showed that non-manufacturing activity in the United States rebounded for the second consecutive month due to the growth of orders and strong employment. The number of initial unemployment claims in the U.S. fell for the fourth consecutive week in the week ending September 3, highlighting the strong momentum in the labor market.
Federal Chairman Powell said at a meeting held by the Cato Institute this week that the Fed is "firmly committed to" fighting inflation and is still expected to continue the policy path that has been opened without paying "very high social costs" and control the soaring price.
The Fed has reiterated many times before that even if economic activity may slow down and the labor market loses some momentum, the Fed will continue to raise interest rates until inflation appears to be under control. In addition, the Federal Reserve will expand its monthly asset-liability reduction to $95 billion starting this month. According to the current schedule, the Federal Reserve will reduce its holdings of $2.5 trillion in assets in two and a half years. This is the unprecedented speed of the Fed's weight loss. The strong U.S. economy is still creating jobs at a higher than consensus pace, and the Fed strengthens its fight against inflation by raising interest rates faster than most peers. The dollar may continue to remain strong for a longer period of time, at least for the rest of this year and next year will remain a force that cannot be ignored.
The European Central Bank must catch up with
This week, the main refinancing rates, deposit mechanism interest rates and marginal lending rates rose to 1.25%, 0.75% and 1.50% respectively. The ECB said interest rates will continue to rise in the coming meetings as inflation remains too high and is likely to be above target levels for a long time.
European Central Bank President Lagarde pointed out that supply bottlenecks have brought upward pressure to inflation , and higher inflation pressure is also caused by the weakening of the euro, and the depreciation of the euro has also exacerbated inflation. The initial signs that inflation expectations are higher than the target are worth monitoring.
However, since the Fed has already begun to raise interest rates sharply, the ECB's 75 basis points rate hike this week will not provide support to the euro for longer. If the ECB cannot continue to catch up, the euro will weaken again against the dollar, which in turn will further intensify inflation.
Rabobank said: "The macroeconomic forecast shows that the euro zone's economic growth prospects are weak, but the ECB is obviously willing to risk economic slowdown because inflation may stay (again) at higher levels for longer. Inflation expectations are facing the risk of "de-anchoring", while the weak euro increases price pressure."
The high energy prices will weaken purchasing power. It is almost certain that the euro zone will fall into a recession, and the radical ECB may exacerbate this recession, especially as the rising borrowing costs come as governments try to help the worst-affected groups. "Thinking of important factors such as trade shocks, slowdown in economic growth and global risk sentiment, even a 75 basis point rate hike will not bring much benefits to the euro," said Downey Securities.If the ECB takes tougher measures, it could limit the downward trend of the euro, especially if the energy shock eases. "
pounds still have many stumbling blocks
New British Prime Minister Tras proposed a £30 billion tax cut plan and proposed a cap on household energy bills, exacerbating the concerns about the UK debt outlook. Bank of England policymakers failed to strengthen their bets on more aggressive rate hikes when they testified before the UK Parliament’s Finance Committee on Wednesday. These all suggest that the path of least resistance against the pound is still downward, and any rebound should be seen as a short selling opportunity for at highs. Economists at Commerzbank insist on their pessimistic prospects for pounds. "Even in order to fight inflation, whether a faster rate hike is really good for pounds is still questionable, as they may further deepen the envisioned long-term recession, which will lead to doubts whether the Bank of England can stick to its restrictive monetary policy for a long time. "
Deutsche Bank added: "The market speculates that Tras will trigger Article 16 of the Northern Ireland Protocol, thus negating part of the agreement with EU . The EU may respond by imposing tariffs on British goods, which will seriously damage UK exports, as the EU remains the most important trading partner. "
Economists at Dutch International Group (ING) believe there is little to be paid attention to about the energy support scheme," as a growth-sensitive currency, the pound looks to continue to be under pressure as the UK enters a recession. In the coming months, the pound is at risk of falling to 1.10 against the dollar. "
yen weakness reflects fundamentals
USD hit a new high since August 1998 to 144.986, and is expected to close for the fourth consecutive week. However, as the US dollar pulls back, the increase has narrowed and is currently up 1.31% to 140.090. As the market bets that the Bank of Japan will continue to implement a loose monetary policy that exceeds , , the yen continues to maintain a relatively poor performance. l3
Bank said it would purchase 550 billion yen bonds in daily operations to keep the benchmark 10-year yield below the upper limit of 0.25%, which further provides clues to the shorts of the yen.
Japanese Finance Minister Suzuki Shunichi This week, the sharp fluctuations in the yen are "unpopular", "Stable currency fluctuations are important, and the foreign exchange market should reflect economic fundamentals. The weak yen has both advantages and disadvantages, but it is not expected that the yen will fluctuate violently. "
But economists at Commerzbank believe: "While all other central bank are tightening monetary policy, the Bank of Japan insists on its expansionary monetary policy beyond , even though Japan's inflation rate has risen and risen by 2% recently... Before the Bank of Japan's monetary policy and decision-making methods changed, the weakness of the yen did get fundamental support. "
Canadian dollar is unlikely to find too much support in the near future
USD fell 0.89% against the Canadian dollar to 1.3007, closing lower after three weeks. The Bank of Canada raised interest rates 75 basis points as scheduled this week to 3.25%, the highest since March 2008. But given the Fed insistence on aggressive rate hikes, the Canadian dollar will find it difficult to get effective support in the short term.
Bank of Canada pointed out that it remains firmly committed to price stability and will take the necessary actions to achieve the 2% inflation target. But as the effects of tightening monetary policy play a role in the economy, it will assess how much interest rates need to be raised.
Economists at 0 Wells Fargo (WellsFargo) expect that even if Canada raises interest rates, we do not expect the Canadian dollar to have much support in the near future, as the Federal Reserve is still firmly tightening its monetary policy, and the Canadian dollar will still face pressure in the near term. But as the U.S. economy enters a recession and the Federal Reserve begins to relax monetary policy in the second half of next year, the outlook for the 2023 rebound will improve.
Economists at Commerzbank said: "The Canadian dollar may continue to struggle due to weak economic data and the Canadian Bank's softening of aggressive interest rate hike prospects, especially as concerns about global recession have deepened impacts on market sentiment. However, the Canadian dollar should gain more benefits from its advantages in the medium term."
RBA hawkish stance softened
AUD rose 0.46% to 0.6837 against the US dollar. Although the RBA raised interest rates 50 basis points as scheduled this week to 2.35%, the move was limited in favor of the Australian dollar. RBA softened the hawkish stance.
AUD against the US dollar hit a new low since mid-July intraday to 0.6698, as RBA chairman Lowe recently denied the announcement of a quantitative tightening plan. He previously commented: "A further rate hike is needed, but it will not follow the preset path. "
Wells Fargo analysts pointed out that the AUD/USD risk tends to decline, "We expect the RBA to raise interest rates at a rate of 25 basis points starting in October, and because the Fed maintains a radical hawkish tendency, the RBA's interest rate hike policy should lag behind the Fed... This should cause the AUD/USD to weaken by the end of this year and even early 2023. ”
This article is from Huitong.com
