Beijing time on Thursday (October 13) in early Asian trading, the US dollar index fell slightly and is currently trading around 113.25. The U.S. dollar index closed down 0.01 percent on Wednesday at 113.27. After the Federal Reserve released the minutes of its September monetary policy meeting in the early hours of Thursday, showing some dovishness, the dollar was weak and fluctuated at a high level.
The minutes of the Fed’s September meeting said multiple participants noted that it was important to calibrate the pace of further tightening to mitigate risks to the U.S. economy. However, the Fed remains committed to raising interest rates to reduce inflation.
“Maybe there is a bit of hope in the minutes that officials are basically weighing the risk of raising rates too aggressively or too high,” said Juan Perez, head of trading at Monex USA. “That’s not the number one concern right now. The number one concern remains inflation. “
According to CME “Fed Watch”:The probability of the Fed raising interest rates by 50 basis points in November to the range of 3.50%-3.75% is 15.2%, and the probability of raising interest rates by 75 basis points is 84.8%the probability of raising interest rates by 100 basis points is 0%; the probability of accumulative rate hikes by 100 basis points by December is 10.1%, the probability of accumulative rate hikes of 125 basis points is 61.4%, and the probability of accumulative rate hikes of 150 basis points is 28.6%
The dollar climbed to a fresh 24-year high against the yen on Wednesday, holding above levels that prompted Japanese officials to intervene last monthwhile the pound rebounded after falling sharply in the previous session as investors pondered the Bank of England’s next move.
Data on Wednesday showed that U.S. producer prices rose more than expected in September, further boosting the dollar against the yen. The producer price index for final demand (PPI) rebounded 0.4%, beating forecasts for a rise of 0.2%. Producer prices rose 8.5% in the 12 months to September after rising 8.7% in August
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After the U.S. PPI data was released, the dollar rose to a maximum of 146.97 against the yen, the strongest since August 1998, and finally closed up 0.72% at 146.90.
Japanese officials intervened on Sept. 22 for the first time since 1998, when the dollar fell to as low as 145.90 against the yen.
“It just reiterates that the BOJ isn’t defending a particular level, it’s addressing volatility,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
Three-month yen volatility on Wednesday was lower than when Japan intervened last month, he added. Three-month yen implied volatility was 11.9%, compared with a high of 13.26% on Sept. 22 when Japan stepped in to support the yen.
Officials reiterated that they stand ready to take appropriate steps to counter excessive currency volatility, though it was less clear whether they wanted to defend specific levels.
Bank of England Governor Bailey reiterated that the Bank of England will end its emergency bond-buying program on Friday and asked pension fund managers to complete rebalancing of their positions by then.
GBP/USD fell to a two-week low of $1.0951 following Bailey’s remarks, and rallied to $1.1133 after the Financial Times reported that the Bank of England hinted to private banks that it may extend its bond buying period, before closing up 1.25% , reported 1.1099.
Among other currencies, the euro remained under pressure, closing down 0.03% at 0.9702 against the dollar on Wednesday.
Gern, an expert at the Kiel Institute of World Economics in Germany, said in an interview a few days ago that the Fed’s aggressive interest rate hikes have put pressure on currencies such as the euro.The economic outlook of the euro area is more pessimistic, facing the dilemma of high costs and industrial transfer。
Gern said that the Federal Reserve and the European Central Bank have aggressively raised interest rates to fight inflation, but the curb effect is difficult to show in the short term, and the recession trend of the US and European economies is becoming more and more obvious. He expects that from the fourth quarter of this year to the first quarter of next year, the momentum of the US consumption and labor market will weaken significantly, and a recession will follow. This will have a major impact on the world economy.
At the same time, Gern believes that the tight energy supply and high prices are the main reasons for the recession of the euro zone economy. The European Central Bank raised interest rates and tightened the financing environment, which also cast a haze on the economic outlook.
The risk-sensitive Aussie fell to a 2-1/2-year low of 0.6235 on Wednesday, before rebounding to end up 0.13% at 0.6277.
Australian Treasurer Chalmers recently dismissed the possibility of a recession, but it is still difficult to prevent the Australian dollar from falling. National Australia Bank’s (NAB) business conditions improved to 25 in September from 18 expected and 20 previously, but the business confidence index matched a bearish market forecast of 5 compared to 10 previously. Earlier in the day, Westpac’s consumer confidence index for October fell to -0.9% from 3.9% previously.
Thursday’s key data and outlook
Big things to watch on Thursday: ECB Deputy Governor Jean-Claude Jindos speaks, BoE monetary policy member Mann speaks.
Summary of Institutional Views
1. Brown Brothers Harriman: Yellen gives green light for stronger dollar
① Brown Brothers Harriman Bank analysis said that the continued risk-off impulse, and the final repricing of the risks brought by the Fed’s tightening policy, may allow the dollar to continue to rebound after the recent adjustment;
② US Treasury Secretary Yellen said that it is in the interests of the United States to let the market determine the value of the dollar, and exchange rate fluctuations are the inevitable result of different policy stances. Yellen’s remarks suggest she’s not worried about the dollar’s surge right now;
③ However, since the dollar is the global reserve currency, this strength could have huge ripple effects on a global scale. There are pressures in several frontier countries and some weaker emerging market countries, but this is entirely beyond the purview of U.S. policymakers.Moreover, the market is far from reaching any kind of deal to rein in the dollar’s gains
2. Westpac: Sterling could still fall as BoE support is temporary
①In view of the fact that the Governor of the Bank of England Bailey has made it very clear that the bond purchase plan is only temporary, the future trend of the pound may remain fragile, and the news that the Bank of England may extend the emergency bond purchase program relieves the pound;
② The pound is expected to fall back to 1.08 or lower in the next few trading sessions, as the dollar remains firm, GBP/USD still seems bearish.Currently, from a global perspective, the dollar has lost some of its safe-haven demand
3. JPMorgan Asset Management: Sharp dollar rally could spark next crisis
① Outspoken chief investment officer of JPMorgan Asset Management Bob Michele has a piece of advice: The sharp rise in the dollar has the potential to pave the way to the next market turmoil;
② He said: “I am concerned that there will be a lot of pressure to have a much stronger dollar, especially to hedge dollar assets back into the local currency… When the central bank hits the brakes, someone will rush out of the windshield. Funding costs rise , will put stress in the system;”
③ The market is likely to have seen some pressure. Investment-grade credit spreads surged nearly 20 basis points in late September. Michele said that this coincided with many FX hedging rollovers at the end of the third quarter, which may be “the tip of the iceberg”
4. HSBC: Euro to test 2022 lows again
① HSBC, a seller of EUR/USD, is expected to test the 2022 lows again, as the recent rally is seen as a squeeze on positions caused by premature hopes for a Fed policy adjustment, rather than a proxy for a change in trend;
②HSBC has been betting that the euro will go lower for more than a year and doesn’t think the trend will reverse; the bank forecasts EUR/USD to fall to 0.9560, or more than 50 points from current levels, with a 2022 low of 0.9535
5. Royal Bank of Canada: USD/JPY to rise to 150 by year-end
① Alvin Tan, head of Asia foreign exchange strategy at RBC Capital Markets, said: “Given the overwhelmingly strong dollar trend has not receded, it is possible that the Bank of Japan will not defend a particular level of the yen, but will try to pass a higher level than before. On defense to slow the pace of USD/JPY gains.
② Tan expects USD/JPY to rise to 150 by the end of the year, adding: “However, the BOJ has also noticed a rise in volatility at the global macro level, which is now a bigger driver of potential further intervention, the driving force behind it. higher than the volatility of any individual currency.”