The dollar has been sluggish in recent weeks, as inflation data shows signs of cooling down, market expects Fed may soon slow down the pace of rate hikes, but hawkish remarks from some Fed officials have once again stirred up market ripples, the dollar gained support and the dollar index returned above 106, falling to a three-month low of 105.13 earlier this week. Affected by this, the RMB exchange rate against the US dollar weakened again, and the exchange rate fell below the 7.1 mark again, hitting the low of 7.1780, approaching the 7.20 level. Currently, the RMB exchange rate against the US dollar is trading around 7.1450.
The representative of the Federal Reserve hawks and St. Louis Fed Chairman Brad said in a public speech on Thursday (November 17) that Fed policymakers should further raise the interest rate , and the interest rate level needs to be higher to achieve the goal of reducing inflation. He believes that interest rates may need to reach at least 5% to 5.25%, and up to 7%, to be sufficiently restrictive.
is a coincidence. Minneapolis Fed Chairman Kashkali also believes that the Fed cannot overweight the data for a month and must continue to raise interest rates until it is determined that inflation will stop rising.
HYCM Industrial Investment Analysis Team said, "Although the US inflation level has slowed down and the attitudes of several Fed officials have begun to gradually soften, Brad's hawkish remarks at this time, causing investors to bet that the Fed will soon slow down its interest rate hikes, which has supported the US dollar higher, and risky assets such as stock were sold. This also shows that the market still has no clear guidance on the direction of the Fed's next monetary policy."
Fed governor Waller publicly stated earlier this week that "the 7.7% CPI gain is still huge, interest rates will continue to rise and will remain high for some time until we see inflation drop to a level close to our target. We still have a long way to go. This will not end in the next meeting or we consider a possible 50 basis points rate hike in the next meeting, or a 50 basis point rate hike after December." This implies that the Fed will not stop hiking interest rates in the short term.
Federal Vice Chairman Breonard has a relatively dovish remark. She said on the 14th that the Fed is indeed paying close attention to core inflation rate data at present. The appropriate approach is to slow down the pace of interest rate hikes as soon as possible. Atlanta Fed Chairman Bostic said on the 15th that interest rate peaks must be maintained for a period of time until inflation is expected to return to the target level of 2%, but it has not been seen so far, and the Fed is expected to continue hikes.
data shows that the US Producer Price Index (PPI), which reflects upstream prices, grew 8% in October, down 0.5 percentage points from September, and lower than market expectations of 8.3%. Excluding food and energy, the core PPI grew by 6.7% annually, well below the estimate of 7.2%. Coupled with the decline in US CPI data last week, the market expects inflation pressure to continue to slow down, which will help the Fed slow down interest rate hikes.
In addition, the monthly retail sales rate in October increased by 1.3%, and the market expects to rise by 1%, the largest increase since February this year; the monthly retail sales rate after deducting automobiles also increased by 1.3%, and the expected increase by 0.5%.
HYCM Industrial Investment Analysis Team pointed out that the recent rebound in global stock markets can be seen to improve market risk preferences, which often weakens the US dollar and reduces its risk aversion function. It can be foreseen that the Fed's future interest rate hike will continue to be adjusted based on economic data, so we need to observe more data for the month to make predictions in advance. In addition, investors need to pay close attention to the geopolitical risks of the Russian-Ukrainian conflict, etc., in order to judge the impact of market risk aversion demand on the US dollar.
After a series of violent interest rate hikes in the Federal Reserve, the current federal funds rate falls in the range of 3.75% to 4%. Some market views believe that the uncertainty surrounding the Fed's interest rate hike in has weakened, and the Fed is expected to make its last rate hike in January 2023, and the rate cut will begin in the fourth quarter. In addition, most views believe that the Fed's interest rate hike is expected to be at 50 basis points next month.
The Fed's aggressive interest rate hikes pushed the dollar to a strong rise this year, with the dollar index rising by more than 22% from its mid-2021 low to its September high this year, and is expected to hit the biggest annual appreciation since record in 1972.However, as US inflation levels decline and the pace of interest rate hikes in the Federal Reserve slows down, the previous increase in the US dollar will also give up some of it.
HYCM Industrial Investment Analysis Team said, "From the current trend, if the US inflation level continues to slow down from decades of highs, this is enough to allow the Fed to slow down the pace of interest rate hikes, the US dollar market may reverse, and shorting the US dollar is expected to be one of the best trades in 2023. From the chart, the US dollar has risen too much this year and is seriously overvalued. If inflation no longer rises, the US dollar will not rise further."
traders will closely monitor any further signs of cooling US inflation, which may prompt the Fed to loosen the throttle after a series of huge rate hikes. Several Fed officials have supported slowing down interest rate hikes, although they stressed that monetary policy needs to remain tight. Of course, investors also need to pay attention to the remarks of Fed hawks such as Brad, which have a profound impact on the trend of the US dollar.
Looking forward to next week, the market lacks important economic data and speeches by Fed officials, and the United States and other Western countries will be closed next Thursday (November 24). Investors need to be wary of the risk of large fluctuations caused by the scarcity of market liquidity. Next week, we will focus on the minutes of the Federal Reserve's November monetary policy meeting released by the Federal Reserve to find clues to future monetary policy. In addition, pay attention to the number of initial unemployment claims in the United States in the week of November 19 and economic data such as Markit manufacturing PMI in November.
For the RMB, driven by the easing of US inflation pressure and the "double positive" of victory in epidemic prevention, the RMB is expected to rebound against the US dollar. The Fed's expectations of slowing interest rate hikes will further alleviate the pressure on the RMB to depreciate against the US dollar.
China's economy continues to recover and develop, and the potential economic growth rate remains within a reasonable range. It can be foreseen that the RMB exchange rate of will continue to remain stable. With the increase in confidence in the financial market, RMB assets will attract more international capital inflows.
HYCM Industrial Investment Analysis Team pointed out, "The recent continuous pullback to and the steady improvement of China's economy, and the short-term depreciation pressure of the RMB exchange rate has been significantly weakened. In addition, factors such as the demand for exchange settlement at the end of the year and the strengthening of the RMB season will help the RMB to get out of the haze period against the US dollar. However, the further rebound of the exchange rate is slow, and it is expected to return to below the 7 mark next year."
From the daily chart, the US dollar/RMB is still in an upward trend, and the psychological price of 7.0000 will become the key support. Technically, the US dollar/RMB exchange rate returns to above the 5-day moving average , and the RSI indicator turns higher below 50, indicating that bulls are involved in supporting the strengthening of the US dollar; however, the MACD columnar line is still diverging below the zero axis, indicating that the pressure above is still large, and the short-term does not rule out the possibility of a decline. In the upward direction, the resistance is at 7.1700, 7.2000 and 7.2778; in the downward direction, the support is at 7.1150, 7.0880 (near the 5-day moving average) and 7.0000 psychological marks.
This article comes from the financial world
