Last week's core economic data was negative for US dollar factors. China's total retail sales of consumer goods in August (%) 5.4 exceeded expectations. The initial value of the University of Michigan Consumer Confidence Index in September was 59.5 lower than expected. The positi

Last week's core economic data

negative dollar factors

• China's total retail sales annual rate (%) in August 5.4 exceeded expectations
• United States September University of Michigan Consumer Confidence Index initial value 59.5 lower than expectations

positive dollar factors

• United States August CPI annual rate was not adjusted quarterly (%) 8.3 higher than expectations
• United Kingdom August seasonally adjusted monthly retail sales rate (%) -1.6 lower than expectations
• United States' initial request for unemployment benefits in the week ending September 10 (10,000) 21.3 Below expectations
• Fed September 21 interest rate (currently 225-250 BPS) resolution market expectations interest rate hike 100BPS 20% / rate hike 75BPS 80%

key points review and outlook

last week US dollar index re-high, currently fluctuating around 109.9. The US CPI data caused the market to reprice the Fed's interest rate hike expectation , and the expectation of 100BPS interest rate hike is generated, the US dollar is strong, and non-US currencies are falling across the board. The US dollar against the RMB also broke 7 for the first time since 2019, and the window above has been opened.

Market Overview

• USD against RMB

Last week, the US dollar index strengthened, and the US CPI data recorded 8.3%, exceeding expectations, indicating that the current Fed's interest rate hike has not yet been able to effectively suppress inflation as expected by the Federal Reserve. The current interest rate hike of 75BPS should be a high probability event. The expectation of interest rate hike of 75BPS has been digested by the market, and the market also saw a large interest rate hike of 100BPS. Previously, the expectation of a 50BPS interest rate hike was higher than the expectation of a 75BPS interest rate hike, and there was no expectation of a 100BPS interest rate hike. The changes before and after also show that the market believes that the Fed needs to use more radical tight monetary policies to continue suppressing inflation. Therefore, at the meeting on September 21, Powell's speech was hawkish and the end-point interest rate in the Federal Reserve's dot chart. At the June meeting, the end-point interest rate in the dot chart given by the Federal Reserve was 3.8% in 2023. This meeting is estimated to raise the end-point interest rate to above 4%, which means that the Fed's interest rate hike channel will be extended.

The current U.S. employment economic data and retail data are relatively good. It is expected that the Federal Reserve has sufficient economic foundation to continue to implement austerity policies, and the US dollar should continue to maintain its strength. Driven by the strong US dollar and RMB, the US dollar broke through the key integer mark of 7.00 last week against the RMB, and the upward trend did not show a significant turning point. It is expected that it may remain above this key point in the future. It may fluctuate at this level again in the short term, but the long-term upward trend remains unchanged.

USDCNH trend chart (Source: Bloomberg)

• Euro against RMB

Euro rose at the beginning of last week due to hawkish remarks from ECB officials and interest rate hikes, but after the release of the U.S. CPI data, it fell back due to the strong US dollar, and was later repaired due to the expectation of ECB interest rate hikes. Although the ECB's expectation of interest rate hikes can support the interest rate spread of European and American in the short term, so that the euro's performance will not be too bad, as winter approaches, the problem of supply of natural gas in the medium and long term will still cause the eurozone to face a sustained economic recession problem. It is expected that the euro will still be under pressure in the medium and short term in the future and emerge from a volatile market. However, there is currently no clear trend direction between the euro and the RMB, and the strength relationship between the two currency pairs is not obvious, so the possibility of a volatile market is higher.

EURCNH trend chart (Source: Bloomberg)

• pound against RMB

pound was also suppressed by the expectation of a sharp interest rate hike in the Federal Reserve's September interest rate meeting. The UK's retail sales data recorded -1.6%, far below expectations and is also an important factor in the weakness of the pound. The Bank of England's interest rate hike expectations have cooled down, and the 50BPS rate hike expectations are not as good as the ECB and the Federal Reserve, which is not enough to show the Bank of England's determination to fight inflation. Currently, the pound is at its lowest level since 1985 and is still falling. Although the RMB is still relatively weak at present, the pound is generally weaker, and it is expected that the pound will maintain a downward trend against the RMB will be very high.

GBPCNH trend chart (Source: Bloomberg)

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