Foreign exchange trading reminder on October 13: The U.S. dollar hits its highest in a year, pay attention to the minutes of the Federal Reserve meeting and inflation data

On Tuesday (October 12), the U.S. dollar index rose 0.16% to 94.52. The market expected the Fed to announce a reduction in large-scale bond purchases next month. At the same time, concerns about soaring energy prices also prompted investors to turn to safe-haven U.S. dollars.

The yield on US two-year Treasury bonds jumped to the highest in more than 18 months. Investors dumped US Treasuries, believing that soaring energy prices would intensify inflation and increase the pressure on the Fed to act earlier than expected. According to a monthly market confidence survey conducted by Deutsche Bank in October, the vast majority of respondents expect U.S. bond yields to rise from current levels.

FXStreet.com senior analyst Joseph Trevisani said that the current focus is on U.S. bond yields. I think the credit market expects that the Fed will begin to reduce asset purchases in November.

Investors will pay attention to the US Consumer Price Index (CPI) data released on Wednesday and the retail sales data released on Friday to find further clues as to when the Fed may begin to reduce its stimulus plan.

Western Union Business Solutions senior market analyst Joe Manimbo said that the data will be very important. These data can explain the inflation outlook and the extent to which economic growth may slow in the third quarter. Therefore, if we see high inflation data tomorrow, it will consolidate expectations for reducing quantitative easing this year, and may cause the market to fine-tune expectations for when to raise interest rates.

The U.S. dollar to yen rose 0.26% to 113.61, the highest level in nearly three years; French Societe Generale Kit Juckes said in a report that rising bond yields, rising oil prices and lack of market catalysts have prompted more and more people to join Japan. Yuan short team.

The yen fell by 4% in three weeks; Ray Attrill, head of foreign exchange strategy at National Australia Bank (NAB), said that the main driver is that we see U.S. Treasury yields rise further - so this is a fairly simple spread of widening. The subject matter has increased the attractiveness of carry trades.

The euro to dollar fell 0.19% to 1.1530, the lowest since July 2020. The rise in energy prices raises concerns that inflation may weaken economic growth. European coal prices have reached record highs, and natural gas prices are four times higher than in early 2021. Germany's October ZEW Economic Sentiment Index fell for the fifth consecutive month, dropping by 4.2 points. The performance was much lower than expected. The supply bottleneck had a serious impact on the largest European economy.

The British pound fell 0.05% to 1.3588 against the US dollar. Due to market speculation that the Bank of England’s efforts to curb inflation will drag down economic growth and the outlook for consumer confidence, the British pound shorts increased their short-selling efforts.

The Australian dollar was basically steady at 0.7350 against the US dollar, while the New Zealand dollar fell 0.13% to 0.6931 against the US dollar.

The US dollar fell 0.7% against the Norwegian Krone to 8.5273, and then recovered some of its losses; the US dollar rose 0.2% against the Swedish Krona to 8.7852. Jane Foley, head of foreign exchange strategy at Rabobank, said that the Norwegian Krone performed well today, indicating that the well-supported oil may still have an impact on the foreign exchange market. It can also be explained from the perspective of inflation. In fact, interest rate differentials do indeed play a very important role. Great effect.

Wednesday preview

OPEC publishes its monthly crude oil market report (the specific publication time of the monthly report is to be determined, generally around GMT+8 18-21)
00:00 AM EIA announces monthly short-term energy outlook report 01:00 AM G20 finance ministers and central bank governors hold a press conference during the World Bank/IMF annual meeting 02:00 AM Fed announces minutes of monetary policy meeting 04:30 AM Fed governor Brainard gives a speech

Summary of Institutional Views

Commerzbank: As U.S. inflation eases, the euro against the dollar is expected to rise in 2022

Commerzbank said that the euro against the dollar has been hit hard recently because the market expects that the Fed will react more positively to high inflation than the European Central Bank, but this phenomenon will not continue. Ulrich Leuchtmann, a currency analyst at Commerzbank, said that inflation in the United States in 2022 may fall faster than market expectations, forcing the market to lower expectations for US interest rate hikes. At that time, the European Central Bank's weakening attitude towards high inflation will no longer have an impact on the euro's disadvantages, and the euro against the dollar should partially recover, although not as strong as we had previously expected. Commerzbank expects that by December 2022, Europe and the United States will rise from the current 1.1558 to 1.20.

Mitsubishi UFJ: Even if the Bank of England shows signs of approaching interest rate hikes, the pound may weaken

Mitsubishi UFJ said that even if the Bank of England appears to be one step closer to raising interest rates, the pound may continue to weaken. Lee Hardman, a currency analyst at Mitsubishi UFJ, said: “The negative supply shocks brought about by the new crown epidemic, Brexit and soaring energy prices will have a more pronounced negative impact on the UK’s economic performance as the end of the year approaches.” Despite economic growth liberalization. However, the Bank of England may raise interest rates to curb inflation. In view of these risks, Mitsubishi UFJ maintains a short position in the British pound against the U.S. dollar.

Analyst: Be cautious before establishing any new AUD bullish positions

The Australian dollar rose steadily against the US dollar to reach 0.7365 in intraday trading, and it was close to a four-week high again. The exchange rate attracted some bargain hunting. The rise was driven entirely by the small decline in the US dollar. However, it lacked bullish belief and remained cautious before establishing any new bullish positions. It is expected that the Fed will still start to curtail large-scale stimulus measures during the epidemic and raise interest rates in 2022. This should benefit the U.S. dollar. Together with a weaker overall risk tone, it may prevent investors from aggressively establishing a bullish position in the risky currency, the Australian dollar; From a point of view, a break above the 0.7315-20 resistance level will benefit the bullish outlook and support further gains. If some follow-up buying breaks through the overnight swing high of 0.7375, it will confirm the positive outlook and push the AUD/USD to regain the 0.7400 mark.