This week, the dollar index rebounded and rebounded after hitting a new low of 111.768 since October 6, and is expected to close higher for the third consecutive week. Federal officials continue to make hawkish remarks to endorse the radical interest rate hike policy. The Fed is expected to raise interest rates for the fourth consecutive time by 75 basis points.
is mainly non-US currency rises and falls back to . There are growing speculations about the possible recession in the euro zone, exacerbating negative sentiment around the euro. British fiscal policy has made a big turn of 180 degrees, short-lived Prime Minister Tras announced his resignation, and the market lacks bullish belief in the pound.
USD rose above 150 against the yen, setting a new high since in August 11990, with a weekly line of ten consecutive negative. With the situation where other major central banks in the world have raised interest rates to varying degrees, the Bank of Japan has insisted on implementing the loose monetary policy of over- for many years and is unwavering, and is responsible for the yen being at a dead end.
Fed officials continue to "hawk"
USD index rises 0.18% to 113.486. It is widely expected that the Fed will raise interest rates for the fourth consecutive aggressively for 75 basis points at its policy meeting in November, and the Fed will raise interest rates again sharply in December.
Minneapolis Fed Chairman Kashkari said that if potential inflation rise does not stop, the Fed may need to push its benchmark policy interest rate to above 4.75%. His remarks show that the Fed is ready to go further.
Kashkari pointed out that reducing inflation is still crucial. In terms of policy, "the risk of insufficient interest rate hikes is more serious than the risk of excessive interest rate hikes. We must let inflation fall back to 2%, and we are constantly committed to the need to do so."
According to the forecast released last month and comments made by some Fed officials since then, most Fed policy makers expect to increase the policy rate from the current 3%-3.25% to 4.5%-4.75% early next year.
supports the Fed's aggressive rate hikes, one fact is that the labor market continues to be tense. There are still about two job openings per unemployed worker. Like any scarce resource, we can see talent hoarding in businesses, which can prevent frequent large-scale layoffs during recessions.
Atlanta Fed Chairman Bostic said the U.S. labor market is still adapting to new wage and career trends that are caused by the pandemic as big corporations raise wages and attract workers to stay away from low-wage jobs.
Federal Director Cook said inflationary pressure was unacceptably high and more rate hikes were needed to curb inflation. She further added that interest rate hikes will continue in the future and restrictive monetary policy will be maintained afterwards.
Philadelphia Fed Chairman Huck hints that the Fed will "continue to raise interest rates for a while" to curb inflation, prompting investors to prepare for another super-large rate hike at the upcoming November policy meeting.
BNP Paribas said the Fed is expected to push the federal funds interest rate to a peak of 5.25% in the first quarter of next year, higher than Fed officials' previously expected 4.6%. It is also speculated that US economy will fall into recession in the second quarter of 2023. "We expect the Fed to more actively deal with stickier and more general inflation, thereby pushing the economy into recession."
Mitsubishi UFF (MUFG) economists believe that the Fed will continue to raise interest rates quickly for the rest of the year to support expectations of further strengthening of the US dollar. According to the bank's current forecast, as risk aversion sentiment further intensifies, the US dollar index still has about 5% room to rise on the existing basis.
Eurozone recession speculation is increasing
Euro up 0.23% against the US dollar to 0.9745, and the intraday high reached 0.9875. Although ECB may continue to raise interest rates by 75 basis points at the next meeting at the end of this month, the eurozone's current account deficit widened to 26.32 billion euros in August, and speculation about the possible recession in the euro zone has increased, exacerbating negative sentiment around the euro.
ECB Administrative Committee member Lian En said: "The risk of stagflation has increased." ECB Deputy Governor Jindos does not rule out the possibility of a technical recession in the euro zone. Of course, these all depend on the specific impact of the European economy from the high energy costs.
Economists at Commerzbank released a report saying that the euro is still weak against the dollar and may turn rapidly. "Comments from ECB Council members show that they have differences on how much interest rate hikes should be raised in the fight against inflation ." Economists at
Dutch International Group believe: "The euro has benefited very little from the recent drop in natural gas prices, which may prove that the market's attention is obviously far beyond short-term dynamics, and may actually be increasingly concerned about Europe's energy supply next year," he said. And not just this winter. So far, the EU summit only shows lingering differences in EU member states’ views on energy price caps. We retain a bearish tendency towards the euro/dollar and are expected to fall below 0.95 by the end of the year. "
UK fiscal policy 180 degrees turn
pound fell 0.65% against the US dollar to 1.1104, and a high intraday high of 1.1439. British Prime Minister Tras, who has only been in office for 45 days, issued a resignation statement on Thursday (October 20). As the government's fiscal policy turns 180 degrees and the political situation continues to be unstable, the market expects the Bank of England to weaken interest rate hikes, and there is a lack of bullish belief in the pound. At the beginning of the week, the newly appointed British Chancellor of the Exchequer Jeremy Hunter announced that the British government would revoke almost all tax cuts in the mini budget. Hunter also announced that it is forming an economic advisory board, and they need to do more to bring certainty to the market.
Economists at Mitsubishi UFB Bank report that austerity fiscal policy support for growth will weaken as the UK economy is already at high risk of falling into recession. Although financing conditions are improving, they may still be tighter than before the mini budget.
The UK's annual CPI rate returned to double digits in September, and the monthly retail sales rate shrank beyond expectations, exacerbating concerns about the UK's cost of living crisis. People are increasingly worried that the UK economy will decline further. In addition, there are reports that the Bank of England will further postpone quantitative tightening policies to help stabilize the bond market. All of these pose a new disadvantage for the pound.
yen is at a dead end
USD rose nearly 1.9% against the yen this week, breaking through the 150 mark, hitting a new high since August 1990 to 151.488, and will close to ten consecutive weeks. The Bank of Japan's long-term implementation of ultra-loose monetary policy is responsible for the yen to fall to a dead end.
Bank on Thursday announced an emergency bond purchase plan worth $667 million, triggering the risk of further weakness in the yen. Earlier, Japanese Prime Minister Kishida Fumio commented that external demand shocks may lead to weakening of the outlook for Japanese economy.
Officials of the Bank of Japan said that Japan will take appropriate and decisive actions to deal with excessive volatility in the exchange rate caused by speculation, maintaining the possibility of more market intervention after the yen hits a new 32-year low again.
Commerzbank economists expect the yen to soften further with the Bank of Japan's stubbornness, and even the Ministry of Finance or the Bank of Japan's intervention in the market will not help. The yen may continue to be under pressure until the Bank of Japan changes its approach to monetary policy . The Bank of Japan is unlikely to have enough time to wait for the U.S. rate hike cycle to end, and even less likely to have enough time to wait for the rate cut —unless it is willing to accept that the yen will continue to depreciate significantly before that.
This article is from Huitong.com
