Euro downward, US dollar upward, flat!
Euro is "expensive" than the US dollar, and this general perception of market entities in the past 20 years is being subverted.
July 11, the USD index rose 1.24% to 108.2193, setting a new high in nearly 20 years. At noon on July 12, the euro fell to 1.0005 against the US dollar, or 1 euro = 1 dollar, for the first time in 20 years.
Analysts pointed out that the strength of the US dollar is the direct reason for the sharp drop in the euro against the US dollar. What impact does this change have on RMB exchange rate ?
1 Euro = 1 USD
On July 12, local time, in the London trading market in the UK, the euro reached an integer mark of 1:1, setting a lowest level since December 2002.
↑Euro-USD trend (July 12)
↑Euro-USD trend (last 20 years)
The last time the euro-USD was at parity level was in November 2002. 2002 was the first year when the euro officially entered Europe's circulation. On February 28 of that year, the currencies of the local currencies of the euro zone member countries were fully withdrawn from the circulation field, and the coexistence period of the euro and the currencies of the member countries ended.
On Tuesday, the US dollar fell against all other G-10 currencies except Norwegian kroner , but still hovered near the highest level since the COVID-19 pandemic began to threaten the world in March 2020. The euro rose slightly.
German Business Daily website analyzed that the continued decline in the euro-USD exchange rate is related to the strengthening of the dollar, the high inflation in euro zone countries, the spread of the European energy crisis and the rise in European high debt under the expectations of the European Central Bank's interest rate hike.
Analysts pointed out that the strength of the US dollar is the direct reason for the sharp drop in the euro against the US dollar. Since the beginning of this year, under the market's expectations that the Federal Reserve's Federal Reserve has accelerated the rate hike of , the US dollar index has continued to rise. On Tuesday, the US dollar index has reached 108.55, hitting a new high since November 2002.
How will the euro dollar change in the future?
Citigroup currency analyst Ibrahim Rabari expects the euro to continue to fall after falling to parity with the US dollar.
Shanxi Securities said that whether from the perspective of tightening strength or economic support, the euro-USD exchange rate still has a further downward logic. In addition, the frequent occurrence of geopolitical problems in the post-epidemic era and the spread of de-globalization thoughts, the value of the safe-haven attribute of the US dollar will be strengthened, making the euro-USD exchange rate passively under pressure, and may fall below parity in the second half of the year, challenging the 0.98 support point.
Looking ahead, Zheng Jiawei, chief analyst of fixed income at Shanghai Securities , said that before the US economy entered a recession stage, the US dollar index will still fluctuate at a high level, and the US dollar appreciation trend will continue to reach the turning point of the Fed rate hike. In contrast, non-US currencies will continue to be under overall pressure.
Zheng Houcheng also believes that in the short term, the US dollar index will most likely be in the high range, mainly based on the following four reasons.
first. Judging from the current situation, there are signs of Ukraine's counterattack against Russia, which will increase the intensity of the conflict between Russia and Ukraine, further negative for the euro zone macroeconomic . Secondly, the Russian-Ukrainian conflict cannot be effectively resolved in the short term, which is likely to destroy the investment environment in the euro zone, causing funds to flow out of the euro zone and enter the United States, which is beneficial to the US dollar index.
Third, although the European Central Bank is likely to raise interest rates in July, considering that the Federal Reserve will likely maintain a high interest rate hike in the short term and the high probability of starting the balance sheet reduction process, this means that overall, the "hawk" degree of the US monetary policy of is higher than that of the euro zone, which supports the US dollar index.
fourth, the trend of the global economy recession and even entering a depression will continue in the short term, and the US dollar, which is a safe haven currency, will continue to be bullish.
senior researcher Wang Youxin, a Chinese Banking Institute, also said he was bullish in the short term, but he reminded that as the risk of US economic recession increases, the negative effects of economic fundamentals will gradually exceed the impact of monetary policy , and the US dollar exchange rate will fall accordingly.
RMB exchange rate maintains stability
In fact, for some time, although the wave of interest rate hikes in major global economies has been one after another, the RMB's "tolerance" has been significantly enhanced, reflecting the "anti-decline" characteristics. Since mid-June, the fluctuation range of the RMB exchange rate has gradually narrowed and has shown a steady trend, and has not been affected by the rapid upward trend of the US dollar index.
Especially last week, the US dollar index strengthened sharply, with an appreciation of about 1.78% during the week. offshore and the onshore renminbi appreciated by 0.17% and 0.10% respectively, becoming the strongest Asian currency.
"While the dollar is strong, the RMB has maintained resilience, reflecting the support of my country's post-epidemic economic recovery, and the CFETS RMB exchange rate index also rebounded." said Li Chao, chief economist of Zhejiang Securities (601878).
Li Chao believes that it is expected that the RMB exchange rate against the US dollar will still fluctuate in two directions in the third quarter, and there will be certain depreciation pressure in some stages, but even in the context of the further upward trend of the US dollar, the depreciation pressure of the RMB is still controllable. "In the medium and long term, in the next 8-10 years, the US dollar cycle will decline and the RMB exchange rate will enter an appreciation channel." Li Chao said.
Industrial Research pointed out that in terms of RMB exchange rate, the scale of foreign capital inflows in the Mainland Stock Connect has reached a historical high level, and we need to be wary of the risk of marginal outflow of A-share funds. After the support for foreign capital to increase its holdings of A-shares weakens, the upward pressure on foreign exchange purchase dividends and the US dollar index will appear. We need to be wary of the RMB exchange rate continuing to start repairing the overvalued market.
Reference source: Xinhua News Agency, CCTV News, Financial Industry, Securities Times, China Securities Journal, Public Information, etc.
