On Saturday (November 20), the U.S. dollar index maintained a fluctuating upward trend that week. The U.S. dollar index rose 90 points, or 0.95%, that week. The Fed’s early interest rate hike expectations continue to heat up, and other central banks’ tightening expectations are not strong, which has led to increasing policy differences between the central banks of the United States and major economies, which supports the US dollar index to rise.
In terms of other non-US products, the European Central Bank, the Bank of England, the Bank of Canada and the Reserve Bank of Australia, the central bank tightening expectations of these economies are not as strong as market expectations. In addition, the Eurozone was also affected by the warming of the epidemic this week. The market will usher in the Thanksgiving holiday next week, and market trading is expected to decline, but the upward trend of the US dollar index is expected to continue.
The U.S. dollar index maintains its volatility this week, and the Fed’s interest rate hike is expected to heat up to support the U.S. dollar
Chart: U.S. Index 4H chart trend
Fed interest rate hike is expected to heat up to support the dollar
More and more Wall Street banks are betting that the Fed will raise interest rates faster than expected, and are optimistic about trading strategies that can profit from the Fed’s faster interest rate hikes. Citigroup strategist Jabaz Mathai said in a report that we believe that with the start of interest rate hikes, the curve may steepen because some uncertainties in the global economy, such as supply chain bottlenecks, will begin to dissipate.
JP Morgan economists said they now expect the Fed to raise interest rates in September next year, becoming another Wall Street bank that has given up expectations that the Fed will keep interest rates unchanged in 2022. In a new outlook report released to clients on Wednesday evening, an American economist at JP Morgan Chase led by Michael Feroli said that by the middle of next year, the Fed’s full employment goal will be achieved.
Economists say this will prompt the Federal Reserve’s policy-making Open Market Committee to raise the benchmark interest rate from close to zero in September, then raise interest rates further in December, and then raise interest rates every quarter thereafter. They expect that once inflation-adjusted interest rates return to zero, interest rate hikes will stop. Feroli and colleagues said that when the facts change, the FOMC will change its mind.
Goldman Sachs economists said last month that they expect the Fed to raise interest rates in July. Economists at Morgan Stanley still believe that the Fed will not adjust interest rates for the whole of next year. Economists at JPMorgan Chase also expressed their belief that Powell will still be reappointed by President Biden as the next chairman of the Federal Reserve.
There are still differences within the Fed on the timing of debt reduction and interest rate hikes.Chicago Fed Chairman Evans reiterated on Wednesday that although the central bank is checking whether high inflation has fallen as he expected, the Fed will not be able to complete its debt-purchasing plan until the middle of next year.
Evans’ view of a controlled reduction in debt purchases is in stark contrast with the views of other Fed policymakers, including St. Louis Fed Chairman Brad. Brad said that as the unemployment rate drops, strong consumer demand and With high inflation, the Fed should speed up its preparations to speed up the reduction in case it needs to raise interest rates early.
It is unclear which faction within the Fed will win, especially when US President Biden is about to decide the next chairman of the Fed.
The next meeting of policymakers will be held in mid-December, when they will also submit their latest economic forecasts and their expected policy path. In September of this year, about half of the policymakers believed that there is no need to raise interest rates until 2023.
Strong retail data this week boosted inflation expectations to support the U.S. dollar
Although the U.S. inflation rate has risen to the highest level in more than 30 years and consumer confidence has also fallen sharply, the retail industry continued to perform strongly in October. The latest data show that the US retail sales in October created the largest increase in more than six months.
According to data released by the Federal Census Bureau on November 16, U.S. retail sales reached 638.2 billion U.S. dollars in October, an increase of 1.7% over September, the highest increase since Biden’s new crown stimulus bill passed in March this year. As the year-end holiday approaches, the good performance of retail sales means that this year’s US consumption is likely to recover steadily.
The inflation data previously released by the Bureau of Labor Statistics showed that the inflation rate in the United States has remained above 5% since April this year. The U.S. CPI increased by 6.2% year-on-year in October, the highest since 1990.
High inflation has indeed had an impact on consumer confidence. On November 12, the University of Michigan announced the consumer confidence index for November, which dropped from 71.7 in October to 66.8, a record low in the past 10 years. Economists also predicted that the consumer confidence index will rise to 72.4 in November.
Richard Curtin, the chief economist of the University of Michigan Consumer Survey, said that the sharp drop in consumer confidence in November was due to the rapid rise in inflation and consumers’ perception that the U.S. government “has not taken effective measures to prevent Reduce losses caused by high inflation”.
The University of Michigan survey shows that one in four consumers believe that inflation has reduced their standard of living. Although the nominal income of consumers has risen, half of households expect their income to become lower next year after adjusting for inflation.
However, relevant data on retail sales show that despite high inflation and rapid price increases, the American people’s shopping enthusiasm remains unabated. The above-mentioned 1.7% increase in retail sales has not been adjusted for inflation, but even the adjusted increase in retail sales reached 0.7%. This shows that the increase in US retail sales in October was not entirely caused by high inflation.
Worries about U.S. debt defaults are bad for the U.S. dollar
The U.S. debt crisis reappeared. In October of this year, the Democratic and Republican parties of the United States reached an agreement to suspend the US debt ceiling until December. As December approaches, the US government once again faces debt default problems.
On November 16, local time, U.S. Treasury Secretary Yelondon urged the U.S. Congress to raise the federal government debt ceiling before December 15 to avoid the risk of government debt default. Yellen said that in accordance with the Infrastructure Investment Act signed by US President Biden, the US Treasury Department must allocate US$118 billion to the Highway Trust Fund before December 15. Although she currently has high confidence in the disbursement of the funds, after December 15th, the US Treasury Department may not have enough funds to fulfill the government’s payment obligations. To ensure that the credit of the US government is not affected, she called on Congress to raise the debt ceiling or suspend its effective as soon as possible.
Analysts pointed out that the issue of the US debt ceiling has repeatedly appeared, reflecting the rapid expansion of US government debt and the political game between the two parties in the United States. It is expected that the two parties will continue to clash on the issue of the debt ceiling. Historically, the deadlock in the debt ceiling negotiations has occurred many times in history, and each time an agreement was reached at the final moment, it is expected that this time will be no exception.
The current US$22 trillion debt ceiling was established in 2019. The latest statistics show that the current US national debt has been updated to US$28.9 trillion. If the US Congress does not pass new legislation to raise the debt ceiling or suspend its effectiveness, the US federal government may be between mid-December this year and mid-February next year. Debt default occurred during the period.
The analysis believes that although the two parties have not yet reached a consensus on raising the debt ceiling, their consensus is that the United States cannot default. The Democratic Party still has differences on the budget mediation process, and may make concessions in the future or postpone the debt ceiling again.
The first video meeting between China and the US dollar eases risk aversion, which is not conducive to the hedge against the US dollar
Xinhua News Agency reported that President Xi Jinping held a video meeting with US President Biden on the morning of November 16. The two sides conducted full and in-depth communication and exchanges on strategic, overall, and fundamental issues related to the development of Sino-US relations, as well as important issues of common concern.
The capitals of the two countries believe that the meeting was frank, constructive, substantive, and fruitful. It is conducive to enhancing mutual understanding between the two parties, increasing the international community’s positive expectations for Sino-US relations, and sending strong messages to China, the United States and the world. Strong signal. The two sides agreed to continue to maintain close ties through various means to push China-U.S. relations back on the right track of healthy and stable development and benefit the peoples of China and the U.S. and peoples around the world.
The euro fell sharply against the US dollar this week, affected by the strong US dollar, a new wave of epidemics in Europe and the dovish signal from the European Central Bank also put pressure on the euro
Chart: 4H chart trend of the euro against the dollar
A new wave of epidemics struck, and the worsening of the epidemic in Europe put pressure on the euro.Recently, the new crown epidemic in Europe has continued to worsen. The number of newly confirmed cases reported by some countries on the 18th hit a new high since the epidemic. The World Health Organization’s weekly report on the global new crown epidemic released on the 16th showed that in the past week in Europe, 230 new cases were confirmed every 100,000 people in 7 days, the highest in the world. Facing the new wave of epidemics, many European countries have tightened epidemic prevention measures and promoted vaccination.
Experts believe that Europe has recently become the “epicenter” of the global epidemic, which is related to factors such as the arrival of winter, premature unblocking, and insufficient vaccination. Many European countries have recently tightened epidemic prevention measures and accelerated vaccination to control the rebound of the epidemic.
The European epidemic has rebounded rapidly. Many experts believe that the increase in indoor activities in winter is one of the reasons, but issues such as the premature relaxation of epidemic prevention measures and the need to increase vaccination rates are particularly worthy of attention.
Lothar Willer, director of the Robert Koch Institute, pointed out on the 17th that Germany is currently “opening too many fields too fast”. In his view, clubs and bars must be closed, large-scale events should be cancelled, and epidemic prevention regulations should be strictly enforced. In some public areas, only vaccinators and COVID-19 patients can enter.
Experts from many countries have emphasized the importance of vaccination. The Robert Koch Institute recently warned that if there is no significant increase in vaccination rates based on the size of the population, the severity of the epidemic in Germany will be far more severe than before. According to data from the Institute on the 18th, 67.8% of the people in Germany have completed the entire vaccination process.
Julian Tang, a virologist at the University of Leicester in the United Kingdom, also pointed out the importance of vaccination. He said: Delta strain can easily bypass natural immunity and vaccine immunity, and cause more symptomatic and serious infections in people who have not been vaccinated.
The European Central Bank Lagarde sent a more dovish signal to the market.European Central Bank President Lagarde is firmer in her expectation that the euro zone inflation rate will ease with the economic rebound and will fall below the 2% target in the medium term.
Lagarde told members of the European Parliament on Monday that as the economic recovery continues and the supply bottleneck eases, we can expect the price pressure of goods and services to normalize. We expect wage growth next year may be higher than this year, but The risk of the second round of effects is still limited.
Driven by rising energy prices, supply chain disruptions and other epidemic-related impacts, the Eurozone inflation rate hit its highest level since 2008. Many economists agree with the European Central Bank’s view that price increases will fall below the target level in 2023, but some areas in the region are panicking about price surges.
Lagarde said that the European Central Bank’s action now to curb price increases is not an appropriate response because of the time span for monetary policy to exert influence. If we take any austerity measures on the current situation, it will actually do more harm than good, because these measures will begin to have an impact when the inflation rate actually returns to a lower level.
The European Central Bank is set to determine the future of its monetary stimulus plan at its meeting next month, when it will receive new economic forecasts. The ECB’s 1.85 trillion euros (2.1 trillion US dollars) pandemic bond purchase plan will end in March next year, and a boost to the conventional asset purchase plan is also under discussion.
For the European Central Bank’s interest rate hike prospects. Lagarde made it clear that it is unlikely to raise interest rates. She said that a rate hike next year-as suggested by the recent financial markets-is unlikely to happen. Even after the expected end of the pandemic emergency, it is still important for monetary policy-including appropriate fine-tuning of asset purchase plans-to support the economic recovery of the entire Eurozone and the sustainable return of inflation to our goals.
HSBC economist Simon Wells said in a customer report on Monday that these risks, coupled with supply disruptions, may cause the European Central Bank to maintain loose monetary policy next month, and interest rate hikes may still be far away.
European Central Bank Deputy Governor Gindos said that realistic results would be the best test of the view of temporary inflation.If inflation starts to decline next year, the European Central Bank’s views will be confirmed and reiterated. In addition, if you take a closer look at these inflation drivers, you will find that the temporaryity is very obvious and will become more tangible next year.
Driven by rising energy costs, supply chain disruptions and other impacts related to the new crown epidemic, the Eurozone’s inflation rate has reached the highest level since 2008. The latest data show that the Eurozone’s preliminary CPI in October was as high as 4.1%.
Although many economists believe that the inflation rate will fall below the target level in 2023, soaring prices are causing panic in some parts of the region. Some officials even said that price increases may be stronger than expected.
However, Jindos said that he also admitted: the magnitude and intensity of the slowdown in high inflation will not be as sharp and rapid as we predicted a few months ago. But he said that the European Central Bank must pay great attention to salary negotiations to ensure that the high inflation rate will not become more persistent under a substantial salary increase.
Jindos said: My personal view is that we will not see interest rate hikes in 2022. Our decision depends on data. We will closely observe how the economic growth and inflation situation evolve in the next few months, but my personal view is that raising interest rates next year is very unlikely.
The European Central Bank warned that the risk of a real estate bubble bursting in the euro zone is rising, which is not conducive to the euro.The European Central Bank stated in a stability report that the real estate market in the Eurozone is heating up, raising the possibility of a correction in residential and commercial real estate.
As families accumulate savings and work more and more from home during the epidemic, demand for real estate is on the rise, pushing house prices up by more than 7%, the fastest growth rate since 2005. The European Central Bank stated in its twice-a-year stability report that the risk of mid-term price adjustment has risen sharply due to rising estimates of overestimation of house prices.
The European Central Bank said that despite the rebound in residential construction activity, labor shortages, global supply chain bottlenecks and rising input prices are inhibiting the construction industry’s ability to increase housing supply, which puts upward pressure on housing prices.
According to the report, although the high-quality commercial real estate market is currently recovering, the prospects for low-quality commercial real estate are “especially bad” due to telecommuting, health concerns and the rise of the boom in environmentally friendly real estate are driving demand for high-quality commercial real estate.
The pound against the U.S. dollar maintains volatile trading this week, the Bank of England is expected to raise interest rates to support the pound, but the strong U.S. dollar limits the rise of the pound
Chart: GBPUSD 4H chart trend
The Bank of England’s December interest rate hike is expected to heat up to support the pound.After the end of the British government’s welfare program for the unemployed during the epidemic, the labor market strengthened, adding to the reason for the Bank of England to raise interest rates as soon as next month.
Data show that in October, the number of new jobs in enterprises was 160,000, and the number of job vacancies surged to a record high. These figures show that when the benefit plan ended in September, almost none of the 1.1 million leave workers were unemployed.
Another survey showed that most of the workers who took leave at the end of September returned to work. A survey released by a British think tank last weekend found that only 12% (about 136,000 people) were no longer employed in October, and most of them chose to be inactive rather than unemployed. This coincides with a survey conducted by the UK National Bureau of Statistics, which found that only 3% of people were fired. This highlights the success of the 19-month mandatory vacation program in helping workers withstand the impact of the epidemic.
Bank of England Governor Bailey said on Monday that employment data is one of the last evidence needed by the Monetary Policy Committee to decide when to raise interest rates for the first time after the epidemic.
Thomas Pugh, an economist at RSM Accounting in the United Kingdom, said: Relatively speaking, the labor market does not seem to be affected by the vacation plan. The continued strong recovery of the labor market will dispel the doubts of members of the Monetary and Monetary Policy Committee.
The next employment report will contain official data on employment and unemployment rates in October and will be released two days before the Bank of England’s December decision. For now, both economists and the market expect the Bank of England to raise interest rates by 15 basis points at this meeting.
Economists joined the market and predicted that the Bank of England will raise interest rates in December.In the past month, British economists have become more hawkish, predicting that rising concerns about inflation will prompt the Bank of England to raise interest rates in December.
A month ago, these economists also predicted that the central bank will maintain the benchmark interest rate at a record low of 0.1% until May next year. This week’s survey revealed that they now expect UK interest rates to rise to 0.25% next month. This will make the UK the first major economy to raise interest rates since the epidemic.
The survey was conducted a week after the central bank policy meeting on November 4. At the meeting of the day, Bank of England officials warned that interest rates would need to be raised in the next few months to bring inflation back to the 2% target level. The market has already factored in the central bank’s 25 basis point interest rate hike expectations before the end of the year, and the interest rate hike expectations thereafter have further increased.
A closely watched business survey shows that nearly 60% of British companies are planning to increase product prices to offset the increase in supply chain costs and wages.
According to a report released by Accenture and IHS Markit on Monday, consumer prices will rise sharply as inflation spreads to the entire economy.
At present, the British inflation rate has exceeded the 2% target of the Bank of England. The chief economist of the Bank of England Peel said that the inflation rate may exceed 5% next year. This has increased the pressure of the Bank of England to raise interest rates. Key economic data on inflation and employment will be released this week. These data may push the Bank of England to formulate an interest rate agenda.
Yael Selfin, chief economist at KPMG UK, said: We expect that the Bank of England will wait until February before raising interest rates for the first time. But considering today’s good news, the possibility of the central bank’s action in early December cannot be ruled out.
The U.S. dollar against the Canadian dollar fluctuated higher this week, supported by a strong U.S. dollar. At the same time, the Bank of Canada is relatively dovish and the decline in oil prices pressured the Canadian dollar to support the exchange rate.
Chart: 4-hour chart trend of US dollar against Canadian dollar
The Bank of Canada suppressed interest rate hike expectations, which is not good for the Canadian dollar.Bank of Canada Governor Tiff Macklem said this week that the Bank of Canada will not raise its benchmark interest rate until the country’s economic slack is absorbed. This has not happened yet, but it is getting closer.
Macklem also pointed out that although inflation risks have increased – affected by shifts in demand caused by the pandemic, supply disruptions and rising energy prices, the central bank still considers recent developments to be transitional.
Macklem said that for policy interest rates, our forward-looking guidance has always been clear. We will not raise interest rates until the economic slack is absorbed. We are not there yet, but we are approaching. The central bank’s policy framework—a flexible inflation target that focuses on the 2% midpoint of the 1-3% control range—means Canadians can trust that inflation will be contained while supporting a full recovery.
Macklem said that our determination does mean that if we finally make a mistake about the persistence of inflationary pressures and the degree of slack in the economy, we will make adjustments. Our framework enables us to do this.
As countries around the world rebound from the pandemic, inflation is soaring, putting pressure on global supply chains. Canada’s inflation rate rose to 4.4% in September and is expected to reach 4.7% in October. The Bank of Canada said last month that its first rate hike may be as early as April 2022, but the money market is betting on a March rate hike, which will raise interest rates 5 times in 2022.
However, experts predict that the Bank of Canada will raise interest rates faster than expected. With the soaring housing prices, the Canadian real estate market has always been considered a foolproof investment, but the reality may not be the case. At present, many banks have issued warnings that the Bank of Canada will frantically raise interest rates in the next two years.
Scotiabank said it may take eight interest rate hikes to fight inflation. Perot, chief economist at Scotiabank, said in recent days that inflation does not seem to be as short-lived as expected, and that inflation issues will put the Bank of Canada into trouble. Perot predicted that the central bank will be forced to take action to raise interest rates 8 times in the next two years.
Economists at Scotiabank predict that there will be an increase of 100 basis points in the second half of 2022. Subsequently, another 100 basis points will be added in 2023. If it is true as Scotiabank predicts, the overnight interest rate will reach 2.25%, which is the highest interest rate Canada has experienced since 2008 and 9 times the current interest rate.
At the same time, CIBC’s November capital market forecast also showed that Canada’s overnight interest rate will rise sharply. They expect the central bank to raise interest rates up to 5 times in the next two years. CIBC believes that after Canada has raised interest rates five times, overnight interest rates will reach 1.50% by the end of 2023.
The decline in oil prices this week is not conducive to the Canadian dollar.The severe epidemic in Europe is still putting downward pressure on oil prices. According to reports, data released on the 17th showed that Germans and Austrians are scrambling to get the new crown vaccine with the surge in infection cases and the restrictions imposed by governments on unvaccinated people.
The market expects that the United States will release its strategic crude oil reserves, which will put pressure on the short-term trend of oil prices. Biden is facing greater pressure from party members, who demanded that Biden release oil from the Strategic Petroleum Reserve SPR in order to suppress rising oil prices.
Marshall Steeves, an energy market analyst at IHS Markit, said that due to market expectations that the Biden administration may consider releasing strategic crude oil reserves and the United States may ban crude oil and gasoline exports, crude oil futures have sold off. Democrat Schumer, the leader of the US Senate, promoted the release of strategic crude oil reserves last weekend.
The United States wants to pull China to release oil reserves. In the face of rising oil prices, OPEC+ still ignores requests from all parties to increase crude oil production. According to media reports citing people familiar with the situation, the Biden administration has called on some of the world‘s largest oil consumers to consider releasing some of their crude oil reserves in order to work together to reduce oil prices and stimulate economic recovery.
Global oil prices hit a seven-year high at the end of October, and oil demand rebounded to near-pre-epidemic levels, but the speed of supply has been slow to keep up. Although the United States has repeatedly asked OPEC+ to increase oil production, the alliance ignored the pressure from the United States and insisted not to increase oil supply.
Sources said that in recent weeks, Biden and his senior aides have proposed this idea to Japan, South Korea and India, as well as China. However, several people familiar with the matter warned that these negotiations have not yet been finalized, and no final decision has been made on whether to take this action on the oil price issue, or any other course of action.
In addition, Biden tracked down whether oil companies manipulated prices. On November 17, local time, in the face of high oil prices in the United States, Biden, who became “suspicious”, wrote to the Federal Trade Commission (FTC), requesting the organization to use all tools to thoroughly investigate whether oil companies are suspected of driving up oil prices. Illegal behavior.
The Australian dollar fell back against the US dollar this week. Affected by the strong US dollar, the RBA’s relatively dovish tone than market expectations put pressure on the Australian dollar.
Chart: 4-hour chart trend of Australian dollar against US dollar
The RBA’s relatively dovish tone than expected by the market puts pressure on the Australian dollar. The Reserve Bank of Australia expects that the economy will quickly recover from the severe contraction caused by the epidemic in the last quarter, but because the impact of global supply pressure is greater than expected, the bank has to raise its inflation expectations. But it is still too early to meet the market’s previously expected interest rate hike.
In the recent quarterly economic report released by the Reserve Bank of Australia, the Reserve Bank of Australia admitted that the inflation rate had returned to the target range of 2-3% two years earlier than expected, which forced it to abandon its commitment to keep bond yields at an ultra-low level. Policy makers also retracted their forecast that interest rates will not be raised before 2024, saying that given that the economy is recovering, it is now possible to raise interest rates in 2023.
Although the lockdown caused economic activity to shrink sharply in the third quarter, the world-renowned vaccination rate since then has allowed the economy to reopen and consumption has rebounded sharply.
The Reserve Bank of Australia stated in the report: With the further relaxation of restrictions, domestic demand is expected to rebound rapidly in the fourth quarter and the first quarter of next year. The bank now predicts that by the end of this year, the annual growth rate of gross domestic product (GDP) will drop from the previous 4% to 3%, but the growth rate in 2022 will exceed one percentage point to 5.5%.
The path of the core inflation rate has been significantly improved, so by the end of this year, it will reach 2.25%, compared with the previous forecast of only 1.75%. However, further progress is considered gradual, so by the end of 2023, the inflation rate will only reach 2.5%.
Crucial to this prospect is wage growth, which has lagged significantly over the years and kept inflation below the target. The Reserve Bank of Australia believes that wages need to grow at a rate of 3% or more per year to keep inflation within the target range, but it expects to reach this level only by the end of 2023.
It was this restrained forecast that led the Reserve Bank of Australia Chairman Lowe to say,Raising interest rates next year is “very unlikely”, Although financial markets expect the central bank to raise interest rates as early as July. In fact, futures and swap contracts indicate that the current 0.1% cash rate will be close to 1.0% by the end of 2022 and 1.5% by the end of 2023.
Citibank analysts pointed out that the RBA Chairman Lowe’s speech seemed to imply that if wage pressures remain moderate, it is acceptable for inflation to exceed the target range. Although the Reserve Bank of Australia does not set a target value for wage growth, our bank believes that wage growth of more than 3% is a necessary condition for raising interest rates.
Citibank believes that if the inflation rate exceeds the RBA’s target range of 2%-3%, but wage growth is less than 3%, then this means that productivity is low, and the increase in inflation is only temporary, driven by supply-side factors , These factors may be resolved.