In the early trading of the Asian market on Tuesday (October 25), Beijing time, the dollar index fell slightly, and it is currently trading around 111.84. The dollar rose on Monday, despite another foreign exchange intervention by Japanese authorities, and the pound traded after Sunak was selected as Britain's third prime minister in the past seven weeks.
The dollar rose to a high of 149.71 against the yen on Monday, and then fell to a low of 145.48 in a few minutes, a move that shows that the Bank of Japan's Ministry of Finance took action again on behalf of the Japanese Ministry of Finance. The dollar closed up 0.90% against the yen on Monday to 148.94.
yen overnight volatility soared to its highest since September 21, the day before the Bank of Japan first took action to support the yen since 1998. Japan may have spent a record 5.4 trillion to 5.5 trillion yen ($36.16 billion to $36.83 billion) in its yen purchase intervention last Friday, according to estimates by Tokyo Money Market Brokerage.
The dollar remained firm after suspected Bank of Japan intervention, but the dollar weakened after preliminary data from the S&P Purchasing Managers Index (PMI) showed that U.S. business activity shrank for the fourth consecutive month in October, and briefly moved below the flat market. The data is the latest evidence that the economy has weakened amid high inflation and rising interest rates. The dollar index rose slightly by 0.10% to 111.99 on Monday. Edward Moya, senior market analyst at
OANDA, said: " These data may indicate that the strong upward trend of the US dollar is coming to an end. You see a significant weakness in these PMI initial values, which is a big warning to me. The US economy has been showing strong resilience steadily, and now it seems that this resilience is disappearing." In September, Fed raised interest rates for the third time in a row 275 basis points, and it is expected to raise interest rates at the same rate for the fourth time in next week's policy-making meeting, but how much enthusiasm policy makers are still to be discussed.
Moya said the market is waiting now to see how weak the economy is and whether the Fed will pause after interest rates hikes in December and February.
According to CME's "Feder Observation": the probability of the Federal Reserve hike of 50 basis points to the range of 3.50%-3.75% in November is 4.5%, and the probability of 75 basis points is 95.5% ; the probability of a cumulative interest rate hike of 100 basis points by December is 0%, the probability of a cumulative interest rate hike of 125 basis points is 43.1%, and the probability of a cumulative interest rate hike of 150 basis points is 54.9%.
pounds were tug-of-war on Monday after the country's former Chancellor Sunak was appointed leader of the British Conservative Party, clearing the way for him to become the next prime minister. However, the UK's economic risks still put pressure on the pound. The pound closed down 0.15% against the dollar on Monday at 1.1275. Giles Coghlan, chief market analyst at
HYCM, said: "No matter how Sunak's prime minister performs, the British economy may have more difficult times as it is working to get rid of the deteriorating recession. Nevertheless, there is one aspect that helps the pound is often overlooked. On the other side of Atlantic , the slowdown in Fed policy may help boost the pound, even more than the UK's fiscal policy."
On the 24th local time, the new Conservative leader of the UK, Sunak, delivered his first brief speech after being elected, saying that he would not hold the general election in advance. According to the procedures, Sunak will form a new cabinet after obtaining the authorization of King Charles III and officially take office as Prime Minister. According to regulations, the new leader of the ruling party will take over the position of prime minister, with his term of office until the next parliamentary election. The term of office of this parliament ends in December 2024.
It is worth noting that the UK strike has not yet ended and continues to have an impact on the economy. The British railway union TSSA said that thousands of railway union members will strike on November 3, 5 and 7. Members of individual railway companies will strike on November 3, 4, 7 and 8, and may not.
The euro fell to a low of 0.9806 against the US dollar on Monday, then rebounded and finally closed up 0.12% to 0.9874. Recession concerns continue to put pressure on the euro.
The euro zone's PMI data fell in October, confirming Deutsche Bank's assessment that the German economy will shrink significantly in the fourth quarter of this year.
Deutsche Bank senior economist Christoph Weil said in a report that all signs are going to fall into recession.Weil said that high inflation has led to a continued decline in purchasing power, which has left a profound impact on private consumption, especially the service industry is fully feeling the impact. He added that the situation in the euro zone manufacturing industry is even more serious. The manufacturing industry is not only affected by weaker demand for private households, but the sharp rise in electricity and gas prices also makes the production of some commodities unprofitable, so despite sufficient orders, companies are still cutting production.
Kitou Macro chief European economist Kai Ningan said in a report: "The initial value of the euro zone in October provides more evidence, and proves that the euro zone is sliding into a rather severe recession, and inflation pressure is still very large. In October, the comprehensive PMI of the euro zone fell from 48.1 in September to 47.1, a decrease exceeding our market expectations and is in line with the decline of GDP."
Kitou Macro Ann said: "Although the PMI shows that economic activity in the euro zone has dropped sharply, inflation pressure has not been significantly alleviated. We predict that the euro zone GDP will fall by 1.8% in 2023 and the average inflation rate will drop to 5.5%. "
Tuesday's key data and major events
Major events that need to be paid attention to on Tuesday: BoE Chief Economist Peel delivered a speech, and EU held an energy minister meeting.
Summary of institutional views
1. Mitsubishi UF: Japan's intervention in the foreign exchange market will only achieve limited success
① Daisaku Ueno, chief foreign exchange strategist at Morgan Stanley Securities, said that in the past crises involving the British pound and Italian lira, the authorities ultimately failed to defend their currency. Similarly, the effect of Japanese secret intervention will be limited. The strengthening of the US dollar is the biggest factor behind the weakening of the yen;
② If the United States shows signs of a rate hike and even a rate cut, then even if it does not intervene, the yen will stop weakening
2.Fast Bank : Be careful in the final stage of the US dollar's rise
①Fast Bank chief global foreign exchange strategist Kit Jux believes that the rise of the US dollar against the yen requires the continuous rise of the yield. The strong US economy, the hawkish Federal Reserve and favorable trade terms support the US dollar, but the market shorts US bonds on , and longs US dollars;
② The rebound of the yen shows that the market needs rising US bond yields to drive the US dollar to continue to rise against the yen. We are approaching the peak of US Treasury yields and US dollar exchange rates. Generally speaking, there will be more large fluctuations in the final stage of the US dollar's rise, rather than the trend. US dollar yen 148.80-0.09%
3.MonexEurope: The Bank of Canada's interest rate hike may be less than expected, or will suppress the Canadian dollar
① British broker MonexEurope said that the rate hike announced by the Bank of Canada at its policy meeting on Wednesday may be less than expected, which may further suppress the Canadian dollar. Monex analysts said in a report that because Canada's medium-term inflation expectation inflation expectation cooling, base negative effects and overall inflation momentum mean that further deflation will occur before the end of the year, so the Bank of Canada may only raise interest rates by 50 basis points, rather than the market's expected 75 basis points;
② Analysts said that if this basic assumption is met, the Bank of Canada does only raise interest rates by 50 basis points, then the situation is very simple - Canadian Treasury yields will fall. And the spread of to with US Treasury bonds will expand, and capital will flow out of Canada
4. Investment company eToro: If Sunak is elected as British Prime Minister , the rising potential of pound will be limited
① Investment company eToro believes that if former British Chancellor Sunak wins the election of the Conservative Party leader, the pound has limited room for appreciation. If Sunak becomes prime minister, the pound could rise due to a decrease in political uncertainty, but the market has gradually digested that expectation, so investors should not expect a sharp rebound in the pound. This also means that there is a risk of trading in pounds that "the market blindly believes in rumors";
② It is expected that there will be no big changes in the short term, and Sunak's election may not be good news for pounds.The UK government plans to announce a balanced medium-term fiscal plan on October 31, but whether the plan can prove that the UK Treasury will re-fulfil its fiscal responsibility to fulfill the fiscal responsibility it fulfills is doubtful
5.MonexEurope: The ECB rate hike has limited impact on the euro
① British broker MonexEurope said that the ECB may raise interest rates again 75 basis points at its meeting on Thursday, but the euro's gains will be limited. MonexEurope analysts said this is because the market has digested the 75 basis points rate hike, and the ECB has no motivation to change expectations for a 50 basis point rate hike in December. In addition, the Federal Reserve may also reiterate its commitment to combat inflation at its meeting from November 1 to 2;
② It is expected that the energy crisis of will cause the euro zone economic outlook to remain bleak in the next few quarters, and the fiscal situation in the euro zone will be more critical for traders in the euro-dollar
6. HSBC : The downward trend of the pound remains unchanged in the next few months
① HSBC said that the ratio of UK debt to GDP will rise, and the net supply of government bonds may exceed 250 billion pounds, a record high. The UK's fiscal deficit is likely to reach around 6% of GDP. It is also worth noting that the core balance in the UK (i.e., current account balance + net FDI) has dropped from 2% of the surplus to around 8% of the GDP deficit over the past two years. All these structural challenges may continue to pull down the pound;
②BoE's argument suggests that the economic outlook may be weaker than previously expected, and the market's attitude towards rate hikes is too hawkish, and the subsequent pound may be under pressure. Even if the market focus shifts from structural concerns to cyclical factors, the combination of weak growth and high inflation facing the UK may put the pound in trouble
7. Scotiabank : Canadian dollar strength focuses on the statement of the central bank
①Canada Central Bank Before the key interest rate resolution, the Canadian dollar volatility was large, and our bank economists believe that any information about the central bank that may start to consider "fine-tuning" rate hikes will damage the Canadian dollar strength. The expectation of a 75 basis point rate hike has been basically fully digested, which will bring the overnight target interest rate to 4.00%;
② Whether the Bank of Canada's outlook and still high inflation allow the president to make concessions at this stage remains to be seen. This week, the United States will also release a large amount of data, including the third-quarter GDP to be released on Thursday, which may be the focus of this week. Tracking data shows that after negative growth in the first and second quarters, the US economy will usher in a fairly solid quarter, with market expectations of 2.1% growth;
③ Atlanta Fed's GDPNow forecast is close to 2.8-2.9%. Solid growth will be beneficial to the US dollar and Treasury yields, and may drag down US stocks and negative Canadian dollars.
This article is from Huitong.com
