Foreign exchange trading reminder on October 14: The minutes of the Federal Reserve meeting show that November may start a reduction, and the US dollar has fallen sharply from a one-year high

On Wednesday (October 13), the U.S. dollar fell from a one-year high. After the release of the minutes of the Fed’s September meeting, the U.S. dollar maintained a downward trend against G-10 currencies. After data showed that the consumer price index rose more than expected in September, the U.S. dollar initially rose. But it quickly gave up the gains.

Due to supply chain factors and rising wages pushing up input costs, consumer prices in the United States climbed in September, but this did not change the market’s expectations that the Federal Reserve will soon begin to reduce bond acquisitions. After the release of US inflation data, the yields of shorter-term U.S. Treasury bonds, which usually fluctuate with interest rate expectations, rose, and the yields of longer-term U.S. Treasuries fell, indicating that the market has not yet digested expectations that inflation will continue for a period of time. The yield gap between the two-year and 10-year U.S. Treasury bonds closed at its narrowest in two weeks, and last Friday it widened to a three-and-a-half-month high.

Edward Moya, senior market analyst at Oanda, said that the market is now seeing an important pivot that inflation shows more persistent signs than temporary signs, which may force the Fed to raise interest rates much earlier than people expected. He said that the market had previously It is expected to raise interest rates in December 2022, but now focus on September 2022. The U.S. dollar index has risen sharply, and now is the time for a correction, which I think may trigger a correction.

The minutes of the Fed’s September policy meeting show that policymakers have hinted that they may begin to reduce their support to the economy during the crisis in mid-November, but they are still concerned about the magnitude of the threat of high inflation and how quickly interest rates need to be raised to respond. There are differences.

The soaring energy prices have exacerbated inflation concerns and triggered investors to bet that the Fed may need to act faster than previously expected to normalize policy. JPMorgan Chase strategist David Kelly said in a report that although rising inflation and slowing economic growth have caused investors to worry about stagflation, we still expect inflation to ease in the next few months, coupled with the labor market The recovery remains strong, and the economy is very different from what it was in the stagflation period of the 1970s.

Kathy Bostjancic, chief U.S. financial analyst at Oxford Economics, said that reducing the size of bond purchases is a foregone conclusion. The bigger question is whether inflation dynamics will cause them to raise interest rates more aggressively and faster? Therefore, interest rate hikes have now become a major focus of the market, and this is where we really see price movements on the yield curve.

The euro to US dollar rose 0.6% to US$1.1593, the largest gain in two months. Speculative buying and model buying pushed up the exchange rate; the euro fell 0.2% against the Swiss franc, approaching the key support level of 1.07.

The U.S. dollar fell 0.32% against the yen in late New York trading to 113.25; after the release of the CPI data, the U.S. dollar once rose, hitting a nearly three-year high against the yen, and then weakened with longer-term U.S. Treasury yields.

The commodity-related currency, the Australian dollar, rose 0.39% to 0.7379 against the US dollar, close to the one-month high of US$0.7384 hit on Tuesday. The New Zealand dollar rose 0.48% to 0.6964 against the US dollar. Morgan Stanley strategists such as Matthew Hornbach said in a report that the New Zealand dollar may underperform other commodity currencies because the hawkish stance of the Reserve Bank of New Zealand has been fully reflected in prices. And the market position is already long.

The dollar fell 1% against the Swedish krona to 8.6996 kronor; the Swedish krona was the best performing G-10 currency on Wednesday; the dollar fell 0.7% against the Norwegian kroner; it fell to its lowest level since June.

The U.S. dollar fell 0.5% to 6.4251 against the offshore renminbi, the lowest since September 15.

Wednesday preview

16:00 IEA releases monthly crude oil market report
18:10 Bank of England member Teng Leiro delivered a speech on monetary policy
20:35 St. Louis Fed President Brad makes a speech
22:00 2021 FOMC vote committee and Atlanta Fed President Bostic delivers a speech on inclusive economic growth
22:40 Bank of England Monetary Policy Committee Member Mann delivered a speech 01:00 AM 2021 FOMC Voting Committee and Richmond Fed Chairman Barr gave a speech 01:00 FOMC Permanent Voting Committee and New York Fed Chairman Williams gave a speech
06:00 Philadelphia Federal Reserve Chairman Hacker delivered a speech on economic prospects

Summary of Institutional Views

Credit Suisse: European and American currency pairs may show a "free fall" to the 1.10 level

It is expected that the euro against the US dollar EUR/USD will fall to the March 2020 high of 1.1495/93, and then stay at that level for a short time. The current trend in Europe and the United States indicates that it will eventually fall below this level, and the subsequent support level is 1.1290. Although we expect it to hold 1.1290 again, the broader risk is biased towards the downside, and the next support level is 1.1020/00. On the upside, the short-term resistance level is 1.1643/63. It is currently expected that this resistance level will limit the continued rise of Europe and the United States, and make the currency pair trend directly downward.

ABN AMRO: It is expected that the US dollar against the Japanese yen USD/JPY is expected to rise to the 120 level

USD/JPY is gathering momentum to break the upside resistance. In the next 15 months, the direction of the US macro economy and Fed policy will be favorable to the US dollar, while the domestic situation in Japan does not seem to be favorable to the yen. The newly appointed Japanese Prime Minister Fumio Kishida put forward the idea of "new capitalism", that the levy of capital gains tax can help income redistribution, which worries the Japanese stock market. In addition, since Japan is still in a state of deflation, the Bank of Japan is expected to be the last A central bank raising interest rates. So far, the correlation between the U.S.-Japan currency pair and the 10-year U.S. Treasury bond yield is still the highest. It is expected that as the U.S. Treasury bond yield rises, the U.S. dollar/yen USD/JPY will reach the level of 120 in the future.

Danske Bank: The US dollar is expected to rise slightly against the Canadian dollar, but the Bank of Canada's interest rate hike will limit its rise

Danske Bank economists expect the U.S. dollar to strengthen, causing the U.S. dollar to rise against the Canadian dollar in the next few years. Nevertheless, as the Bank of Canada will raise interest rates, the Canadian dollar should limit its decline. Danske Bank economists said that in view of our expectations of a stronger U.S. dollar and the eventual setback of inflation-sensitive assets, we still expect the U.S. dollar to rise against the Canadian dollar in the next few years. However, we can see that the market's pricing of the upcoming interest rate hike by the Bank of Canada will provide more support to the Canadian dollar, which in turn should limit the US and Canadian banking space. The Bank of Canada is expected to raise interest rates in the third quarter of 2022 and raise interest rates three more times before the end of 2023.