Returning to a 20-year high, why does the dollar continue to strengthen?

time:2023-03-22 author:Individual stock recommendation
Returning to a 20-year high, why does the dollar continue to strengthen?

Under the high inflation in the United States, the dollar index returned to a 20-year high. On August 23, the US dollar index rose by more than 109 after more than a month. At the same time, the euro fell below the 0.99 mark against the dollar, hitting a new 20-year low; the Korean won fell to a 13-year low against the dollar; the yen fell to the 140 mark against the dollar, dashing hopes of a rebound in the yen. The rapid appreciation of the dollar is even more damaging to emerging markets, where central banks are consuming the equivalent of more than $2 billion in foreign exchange reserves each working day to prop up their currencies. This year alone, India, Thailand and South Korea have lost a combined $115 billion in foreign exchange reserves. Currencies such as the South Korean won, Hungarian forint, Brazilian real and Mexican peso are the most vulnerable to new lows as the U.S. Treasury yield curve inverts further, a key indicator of an impending recession, TD Securities said.

The global economic slowdown boosts safe-haven demand

The tight liquidity in the euro area and the wave of recession swept the world, the global economic growth continued to slow down. Against this backdrop of growing concerns about recession risks, the greenback's appeal as a safe-haven asset has strengthened. The weak passiveness of non-US currencies such as the euro, the pound, and the yen has given the US dollar index an upward momentum. According to media survey data, JPMorgan is the most pessimistic about the euro forecast. It expects the euro to fall to $0.95 by December. RBC Capital Markets expects the pound to fall by more than 5% to $1.11 over the same period, while the Commonwealth Bank of Australia expects the Australian dollar to fall to 65 cents. Hedge funds' net short bets on the euro have risen to a three-week high, while short bets on sterling have climbed to their highest level since March 2020, according to the latest data from the U.S. Commodity Futures Trading Commission, and asset managers have stepped up The strength of shorting the yen. At the same time, the weakening of the euro is also driving the US dollar index to strengthen. The euro against the US dollar accounted for 57.6% of the US dollar index. The European Central Bank maintained its loose monetary policy stance, causing the euro to continue to fall against the dollar. Currently, the euro fell below the 0.99 mark, hitting a new 20-year low.

The U.S. dollar index rose with hawkish comments from the Federal Reserve

The U.S. dollar index has reached a nearly 20-year high. As of press time, the US dollar index was at 108.78, but the market believes that the US dollar still has room to rise. Federal Reserve Chairman Jerome Powell will speak at the Jackson Hole Symposium later this week. Analysts said Powell is likely to reinforce his hawkish stance at the meeting, which would exacerbate the dollar's gains. According to the media, Nicky Shiels, director of metals strategy at MKS PAMP, said: "Powell is expected to reiterate his determination to continue raising interest rates to control prices, and even if the pace of their rate hikes slows, they will not turn around and cut rates anytime soon." Brown Brothers Harriman Co. "The dollar should continue to benefit from a relatively strong U.S. economic outlook and an increase in Fed tightening expectations, even if the risk-off impulse fades," Win Thin, global head of FX strategy, wrote in a note. "The dollar smiles." "It doesn't appear to have changed, referring to the dollar's strength during a U.S. economic outperformance or a recession. In both extremes, investors see the dollar as an opportunity to secure growth, or a relatively safe place to deploy cash to ride out a storm. As the previously announced U.S. CPI in July was lower than expected, triggering market expectations for peak inflation, expectations for a 75 basis point rate hike in September once cooled to 50 basis points, which also caused the dollar index to fall below 106. However, a series of hawkish comments from top Fed officials last week cooled expectations for a peak in rate hikes. The hawkish St. Louis Fed President James Bullard and the dovish San Francisco Fed President Mary Daly both said they may raise interest rates by 75 basis points in September. Kansas City Fed President Esther George also said they won't stop tightening until they have "complete confidence" that inflation is coming back down. This article is from Wall Street News, welcome to download the APP to see more
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