Before the European session on Tuesday, the US dollar index continued to fall, falling below the 90 mark, hitting a new low since the end of February.
Assets denominated in US dollars, such as gold and international crude oil, have strengthened. As of press time, spot gold has stabilized above the 1870 mark; Brent crude oil futures have reached $70 per barrel, the first time since March 15; WTI crude oil futures have reached $67 per barrel, the first time since March 8.
At present, a general consensus is that the Federal Reserve believes that the surge in inflation is temporary and will continue to tolerate the acceleration of inflation . Now the market is increasingly convinced that the Fed will not raise interest rates early, which has depreciated the dollar against most major currencies.
Yesterday, three Fed officials also cooled down the frenzy of interest rate hike bets.
Dallas Fed Chairman and "Big Hawk" Kaplan said on Monday that the imbalance in supply and demand and the underlying effect will fuel high inflation this year, but inflation pressure is expected to ease in 2022. Meanwhile, he reiterated that he expects interest rates to rise until next year.
Federal "second-in-command" and vice chairman Clarida also calmed the market's panic about reducing QE. He said that employment data shows that the US economy has not made further progress and the time to discuss the reduction of codes has not come.
FOMC ticketing, Atlanta Fed Chairman Bostic said that healthy inflation levels are a sign of a healthy economy and the Fed does not need to take action now.
In addition to the hawkish expectations that have been downplayed and suppressed the US dollar, another point worth paying attention to is that the support effect of US Treasury yields on the US dollar has been reduced. html Starting from mid-13, the 10-year U.S. Treasury yield ended its previous rapid rise and started a consolidation market that has continued to this day.
In addition, the strong rebound of non-US currencies may also drag down the US dollar index , and the euro, pound and Australian dollar continued to rise on Tuesday afternoon. The UK unemployment rate data just released unexpectedly improved, and the US once surged to 1.4195. Shortly after the opening of the European session, the euro hit 1.22 against the dollar, the first time since February 25. The pound broke 1.42 against the US dollar, the first time since February 24.
Euro has also regained the favor of investors. Credit Bank of France said:
"Based on our foreign exchange position indicators, the euro has been bought for most of the past week, and real money investors have driven the latest developments."
1 Stock-related capital inflows may be one of the main driving forces for the euro's strengthening. Agriculture Credit Bank added that at least on the premise that euro-denominated risk assets continue to perform well, the possibility of further upward of the euro will not be ruled out in the short term. However, in contrast to real-money investors, speculative investors such as hedge funds have been weakening their efforts to bet on the upward trend of the euro. These capital flows are enough to prevent the euro from entering the strong overbought area.
Mitsubishi UF believes that as the German Treasury yield turns from negative to positive, the euro will have further upside potential , which should help make bond flows more beneficial to the euro. The spread between the US and Germany's 10-year Treasury bonds has now reversed most of the expansion trend in March. The current 10-year Treasury bond yield has exceeded its pre-pandemic high, hitting a new high since May 2019. Mitsubishi UFL pointed out that this may mark an important moment. Putting aside the relative yield difference, the full negative yield on the euro zone 10-year Treasury bonds may be about to end.
Euro strengthening may continue to drag down the performance of the US index. Financial website Fxstreet believes that the euro is bullish against the US dollar to 1.22.
Although the sell-off of the dollar is favoring the euro-dollar strengthening, the pair is still waiting for the euro zone's first-quarter GDP data and the speech of ECB President Lagarde in search of new impetus. Optimism about the COVID-19 vaccination situation may be the main reason for the recent rise in risk appetite, which in turn puts downward pressure on the dollar.Looking ahead, traders on this pair will seek confirmation of the optimistic outlook for the European Commission to raise its 2021 GDP growth forecast to 4.3% in order to maintain bulls' hopes.
Source: Jinshi Data
