Foreign exchange trading reminder on September 13: The dollar fell, focusing on the US CPI in August, the European Bank advocated further interest rate hikes, and the euro is expected to continue its upward trend
Beijing time on Tuesday (September 13) in early Asian trading, the US dollar index fell slightly and is currently trading around 108.27. The dollar index fell to its lowest level in more than two weeks on Monday after recent strong gains, as investors grew nervous ahead of U.S. inflation data and central banks outside the U.S. appeared increasingly hawkish.
U.S. CPI for August, due on Tuesday, will be closely watched for how aggressively the Federal Reserve may need to raise interest rates this week to combat high inflation, strategists said.The Fed’s policymaking arm is expected to raise its benchmark overnight lending rate again from its current range of 2.25%-2.50% at its Sept. 20-21 meeting.
According to CME “Fed Watch”:The Fed has an 8% chance of raising rates by 50 basis points by September and a 90% chance of raising rates by 75 basis pointsBy November, the probability of a cumulative rate hike of 75 basis points is 6.3%, the probability of a cumulative rate hike of 100 basis points is 73.8%, and the probability of a cumulative rate hike of 125 basis points is 20%.
The U.S. dollar index has been strengthening on expectations of aggressive Fed action, hitting a 20-year peak of 110.79 on Wednesday, but has since retreated. On Monday, the U.S. dollar index closed down 0.62 percent at 108.30, after hitting 107.81, its lowest since Aug. 26.
Joe Manimbo, senior market analyst at Convera, said: “The dollar’s rising trend is taking a breather. This is mainly behind improved risk sentiment, hawkish stance from foreign central banks, and US inflation will show that the worst is over. hope.” Manimbo added: “One factor helping to limit dollar weakness is signs that the U.S. economy is resilient.”
The New York Fed’s monthly survey of consumer expectations showed U.S. consumers’ inflation expectations slipped further in August as gasoline prices continued to fall sharply from June’s record highs, a development that could provide some comfort to Fed officials, who have been Fears of inflation at 40-year highs could change consumers’ perceptions of the stickiness of current price shocks.
The euro climbed to a more than three-week high of 1.0197 against the dollar on Monday as European Central Bank officials advocated for further aggressive currency tightening, before retreating to end up 0.76% at 1.0121.
ECB policymakers believe the central bank needs to raise its key interest rate to 2 percent or higher to contain the risk of record inflation in the euro zone, the sources said.
Germany’s economy is expected to shrink next year, contrary to forecasts three months ago, as a sharp rise in energy costs due to the war in Ukraine has dashed hopes of a recovery after the end of the coronavirus lockdown, the Ifo Institute for Economic Research said on Monday.
Germany backs further rate hikes in Europe and sees inflation easing only in mid-2023. On Sunday, Bundesbank President Joachim Nagel, a member of the European Central Bank’s Governing Council, said the ECB would need to keep raising interest rates if current consumer price trends continue.
Last week, the European Central Bank raised interest rates by a historic 75 basis points, the last time it raised rates by this magnitude was in 1999. According to people familiar with the matter, the European Central Bank officials are ready to raise interest rates sharply again at the October meeting if the inflation situation does not improve, according to people familiar with the matter.
Sterling touched a 37-year low of $1.1404 last week before rebounding, closing up 0.82% at $1.1680 on Monday.
According to the data released by the British Bureau of Statistics, the inflation rate of the United Kingdom in July this year was as high as 10.1%, a new high since February 1982. It is also the first country in the G7 whose inflation rate exceeded 10%. In addition, the UK is also facing economic growth pressure. The Organisation for Economic Co-operation and Development (OECD) predicted in June that UK economic growth would stall next year.
The Bank of England will make a difficult choice between “fighting inflation” and “stabilizing growth”. Two days before the Queen’s death, Britain ushered in a new Prime Minister Truss, who pursued monetarism and was committed to helping people ease the pressure on living costs through tax cuts. Societe Generale Securities Research Report said that while promising to cut taxes, Truss emphasized that it would not cut public spending, which means that the government deficit may expand again.In the short term, investors are expected to be more cautious about gilts and the pound.
USD/JPY closed up 0.13% at 142.83 on Monday. Over the weekend, Japanese officials hinted at intervention to stem the yen’s decline. In an interview with local television, a high-level government spokesman said the government must take necessary measures to counter the excessive depreciation of the yen.
Key data and outlook for Tuesday
Big things to watch on Tuesday: OPEC releases its monthly crude oil market report.
Summary of Institutional Views
1.ING: The Bank of England is expected to raise interest rates by 50 basis points in September
① Chris Turner, head of global markets at ING: After the June bank holiday adjustment, the data is a bit difficult to interpret. We think the Bank of England will pay more attention to tomorrow’s August employment data to understand how tight the UK labor market is;
② Overall, we expect the Bank of England to raise interest rates by another 50 basis points when it decides on the policy rate on September 22
2. Rabobank: The UK and EU face trade risks, which may push the pound lower
① Rabobank said the pound could depreciate further in the coming weeks, given that tensions between the European Union and the European Union may escalate. Rabobank foreign exchange strategist Jane Foley said that although British Prime Minister Truss said he wanted to negotiate with the EU on a post-Brexit Northern Ireland trade arrangement, trade risks remained;
②Foley said that if Truss can find a solution to strengthen relations with the EU, investors will cheer up. However, this is not easy;
The EU has launched legal action against the UK over its plan to overturn the Northern Ireland deal in the Brexit deal, and the UK has until Thursday to formally respond
3. UBS: If the US CPI data weakens on Tuesday, it may stimulate a correction in the dollar against the yen
① UBS Securities foreign exchange strategist Vassili Serebriakov said that if the U.S. inflation data “softens” on Tuesday, it will give the dollar an initial boost to a further correction against the yen. The dollar weakened against many developed currencies, but not against the yen, which is inconsistent with the current economic backdrop;
②The price of natural gas is supporting the pound and the euro.Ukraine conflict and energy crisis are far from over, so now is not the time to buy the euro
4. Mitsubishi UFJ: The yen resumes its decline and is expected to weaken further
① Mitsubishi UFJ said that the yen has resumed its depreciation, reflecting that the improvement in global investor sentiment has reduced the demand for safe-haven assets, while Japanese policymakers have not stepped up efforts to curb the weakening of the yen. The yen briefly recovered last week after Japanese officials threatened to act to support the yen;
②Mitsubishi UFJ foreign exchange analyst Lee Hardman said in a report that we do not yet believe that Japanese policymakers will keep their word, so we will maintain our long USD/JPY view, but we acknowledge that the risk balance is no longer favorable. Mitsubishi UFJ targets USD/JPY at 146.00 with stop loss at 136.50
5. Capital Economics: Aussie to weaken for the rest of 2022 and into 2023
① Analysts at independent research firm and consulting firm Capital Economics expect the Australian dollar to weaken in the coming months and throughout 2023;
②Analysts say two factors in particular will weigh on the Aussie: 1) the country’s slowing property market; 2) Australia’s terms of trade have deteriorated as the Asian economy slows
6. National Bank of Canada Wealth Management (NBF): EUR/USD near parity in coming months
①The EUR/USD continues to trade sideways near parity. This situation may continue for some time. As the economic situation deteriorates, the euro area is likely to fall into negative growth. The European Central Bank appears committed to raising interest rates to contain inflation, a development that could help stabilize EUR/USD;
②We think EUR/USD will trade sideways in the coming months before moving higher on the back of a weaker USD trade-weighted index
7. ANZ: The Fed is tightening, the New Zealand dollar is not worrying
①ANZ economist Tom Kenny said that the market believes that the September FOMC meeting to raise interest rates by 75 basis points is almost a certainty, and no Fed officials have refuted this expectation. In addition to important factors such as geopolitics and US CPI, New Zealand’s current account and GDP released on Wednesday and Thursday are also critical;
②NZD/USD rebounded from 0.60 last week to 0.6106. From a technical point of view, the rebound is not small. If macro events are not considered, the super bearish sentiment of NZD is expected to be suppressed. The latest situation in Russia and Ukraine has not caused too much impact on commodities, and it is still in the early stage, just pay attention to the follow-up development.