Last week's core economic data
negative U.S. dollar factors
- Japan's national CPI annual rate in August (%) 3 exceeded expectations
positive U.S. dollar factors
- United States' initial unemployment claims in the week ending September 17 (10,000) 21.3 lower than expected
- euro zone September consumer confidence index initial value -28.8 lower than expected
- euro zone September Markit manufacturing PMI initial value 48.5 lower than expected
- United States September Markit manufacturing PMI initial value 51.8 Higher than expected
- Federal November 2 interest rate (current 300-325 BPS) resolution market expectations rate hike 75BPS 74.8% / rate hike 50BPS 25.2%
Key points review and outlook
Last week USD index strongly broke through to around 113. The US dollar continued to be strong compared with other non-US currencies. In September Fed rate hike landed 75BPS, the US dollar received strong support, and the US dollar is expected to continue to remain strong. The UK raises interest rates by 50BPS, but the tax cut policy is even more negative for the pound. The US dollar continues to rise against the RMB, and there is no obvious sign of turning heads temporarily.
Market Overview
- USD against RMB
Last week, the US dollar index strengthened, and the Fed's interest rate hike reached 75BPS in September, and released a strong hawkish signal, raising the dot chart. The interest rate forecast for next year is 4.6%, higher than the previous market expected peak of 4.5%, which means that the interest rate hike process will still be mainly based on the interest rate hike process in the early stage of 2023, and the US dollar will receive strong support. The market expects that the next Fed interest rate meeting will likely raise interest rates again at 75BPS. The U.S. dollar index therefore rose strongly above 113, up about 3%, the largest single-week gain since 2020. The latest data on the number of initial unemployment claims that week and the US manufacturing PMI data performed well, indicating that the current domestic economy of the United States is still resilient, which means that the Federal Reserve is still the easiest thing in the world to make up its mind to implement austerity policies to fight inflation.
In Europe, Russia mobilized partly, hitting the euro and various risky assets, and funds turned to US dollar hedging. Domestic, , the People's Bank of China, announced that it will increase the foreign exchange risk reserve ratio for forward foreign exchange purchase business from 0 to 20% from September 28, aiming to increase the cost of foreign exchange purchase in the foreign exchange market and curb the rapid depreciation of the RMB. It will help alleviate the pressure of RMB depreciation in the short term, but the long-term trend still shows no signs of obvious changes. It is expected that the US dollar will continue to maintain a strong upward trend against the RMB in the future, with limited resistance above.
USDCNH trend chart (Source: Bloomberg)
- Euro against RMB
Last week, the European economic data was weak, and the manufacturing PMI and consumer confidence index were lower than expected. Italian parliament election right-wing forces rose, right-wing leader Meloni was expected to be difficult to manage Italy's huge debts successfully, which means that Italy will find it difficult to complete the EU economic indicators and receive a 191.5 billion EU epidemic recovery fund. If affected by this, the internal economic division of Europe and the widening of the interest rate spread will affect the effectiveness of the subsequent transmission of the ECB's interest rate hike policy. Although the current ECB's interest rate hikes are still relatively hawkish, geopolitical risks continue to hit the European economy and market confidence in the euro. In terms of the Ukrainian crisis, the Russian-controlled area in eastern Ukraine held a referendum, Russia carried out partial mobilization, and the energy crisis intensified, causing the market to move to a safe-haven dollar. Under the suppression of the strong dollar, the euro is expected to fluctuate weakly. Although the euro may fill the previous gap against the RMB in the short term, the overall trend is still downward.
EURCNH trend chart (Source: Bloomberg)
- pounds against RMB
The new British Prime Minister's government last week introduced a radical £45 billion tax cut policy, which will cancel the hike of corporate tax, cancel the maximum tax rate of 45%, and reduce stamp duty, etc. The overall stimulus scale reached 161 billion pounds. In order to support the tax cut stimulus policy, the British government decided to issue an exceeding expectations of 193.9 billion pounds of Treasury bonds. The large government deficit has caused the market to sell pound and British bonds sharply while the Bank of England raises 50BPS interest rates against inflation. The pound fell sharply against the US dollar last Friday, setting a new 37-year low and losing to the 1.09 mark.The market expects the Bank of England to raise interest rates by 75-100 BPS at its November meeting, but such a large-scale interest rate hike may hurt the already fragile economy of the UK, and the pound is expected to remain weak and depreciate. Although the pound against the RMB may fill the previous gap in the short term, the overall trend is still downward.
GBPCNH trend chart (Source: Bloomberg)
Disclaimer:
Lianlian Planet has made no express, implied, legal statements and guarantees of any information published in this article and application. The information provided in this article is for reference only. No matter to anyone, such information does not constitute advice on entering certain transactions or adopting certain safe-haven, trading or investment strategies, nor does it constitute a prediction of possible future changes in certain exchange rate or price, nor does it mean that any such changes in the future will not exceed the extent stated in this article.
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