Beijing time on Friday (August 12) in early Asian trading, the US dollar index rose slightly and is currently trading around 105.12. Data at 20:30 Beijing time on Wednesday (August 10) showed that the U.S. CPI monthly rate in July was the same as the previous value after seasonal adjustment, and was not as hot as expected. basis point expectations.

 

 

 

The U.S. dollar index posted its biggest one-day drop in five months on Wednesday after the report, closing down 1.02 percent at 105.23. Traders revised their forecasts to factor in the possibility that U.S. inflation has peaked.

 

Fed funds futures traders are now pricing in a 58% chance of a 50 basis point rate hike by the Fed in September and a 42% chance of a 75 basis point hike.

 

The U.S. dollar index continued to slide on Thursday, falling as much as 0.57% earlier in the session, but then recovered most of its losses and ended up 0.03% at 105.15.

 

"We may have seen a peak in U.S. inflation, but I'm cautious about expecting the dollar to weaken significantly from current levels," said UBS FX strategist Vassili Serebriakov.

    

Policymakers have sought to suppress any expectations of a significant Fed easing, with Minneapolis Fed President Shkali saying at a meeting on Wednesday that the central bank was "far from declaring victory" on inflation.

 

U.S. producer prices unexpectedly fell month-on-month in July, data on Thursday showed, as energy product prices eased, core producer price inflation also appeared to be trending lower, while initial jobless claims rose for the fourth straight time amid a still tight labor market. rose for two weeks. Stocks surged on Wednesday on positive inflation data and continued to climb earlier on Thursday, but those gains faded as investors questioned the Fed's next move.

    

Karl Schamotta, chief market strategist at Corpay, said: "The easing of financial conditions that is taking place in the global financial system is not consistent with the policy Fed officials want to pursue, so for currency traders, the reality is that the market is going

The potential may be short-term. "

 

EUR/USD closed 0.18% higher at 1.0317 on Thursday. The risk of economic contraction continues, and the political situation in Italy is unstable, which puts pressure on the euro.

 

Market analysts believe that this winter, as the inflation rate peaks, the euro zone may usher in a slight economic recession. However, the analysis said that if consumers can be protected at the height of the energy crisis, the euro zone may be able to emerge from a mild recession.

 

Some analysts pointed out that if the governments of the euro zone countries provide strong support for households and businesses, and the price of natural gas falls next year, the output value of the euro zone is expected to shrink by 0.3% in the fourth quarter and 0.2% in the next quarter, and GDP for the whole year of 2022. Growth will slow to 3.3%.

 

Investors are also concerned that the euro zone faces significant risks after the September Italian elections. After the country's former Prime Minister Draghi resigned, Goldman Sachs lowered its growth forecast for Italy, while Standard & Poor's and Moody's have successively lowered their rating outlooks on Italy. Analysts noted that risks to Italy's credit profile have increased recently.

 

Sterling closed down 0.05% at $1.2192 on Thursday. Sterling, already weighed down by the poor health of the economy and public finances, faces another storm as the front-runner for Britain's next prime minister proposes changes to the central bank's mandate.

 

Foreign Secretary Truss, who is leading the race to become Britain's next prime minister, has further called for a review of the Bank of England's mandate and raised the possibility of setting a new money supply target.

 

Concerns about the reactivation of the money supply target are that Truss may be suggesting that it is a way to ease monetary policy and make the economy hotter. The rise in inflation comes as the money supply has been shrinking in recent months, signaling the risk of an economic contraction.

 

While Truss' remarks remain vague, analysts and investors have begun to ponder risks that are not currently reflected in the market.

 

Gordon Shannon, portfolio manager at TwentyFour Asset Management, said: “If you change the mandate, you’ll see a sell-off in gilts and a sell-off in sterling. We’re not taking it too seriously at the moment, but it’s possible the market is taking such an event. would be too complacent."

 

 

Friday's key data and outlook

 

 

Big things to watch on Friday: San Francisco Fed President Daly's interview with Bloomberg.

 

Aggregate Viewpoints

 

1. TD Securities: Euro rally is a selling opportunity

 

① Mark McCormick, head of foreign exchange strategy at TD Securities, wrote in a report that now is the time to short the euro against the dollar and target parity. Despite the improving market backdrop, risk assets are not out of the woods. Peak U.S. inflation and the associated “end search for the Fed’s terminal rate” are important factors in predicting a peak in the U.S. dollar, and now is not the time to be bearish on the U.S. dollar;

② Investors may sell EUR at 1.0345, target parity, stop loss at 1.055

 

2. ANZ is bullish on the NZD

 

① The market's reaction to the news that US inflation may have peaked opened the door for further strength in the New Zealand dollar;

②ANZ economists said they expect the New Zealand dollar to gradually rise in the coming months

 

3. ING: The upside of EUR/USD may be limited, and the upside of Europe and the United States may be limited

 

①Because the Fed is still committed to raising interest rates, and the energy supply problem in Europe is still a negative factor for the euro. ING analyst Chris Turner said in a research note that weaker-than-expected U.S. inflation data triggered a drop in the dollar, but the decline would not last as Fed officials have reiterated their plans to raise interest rates further;

② At the same time, the dry conditions and low water levels of the Rhine will bring challenges to the transportation of coal and other goods, thus keeping European gas prices high. This factor remains an outright bearish for the euro. 1.0350-1.040 may prove to be the top of the August trading range in Europe and the US

 

4. ING: GBP/USD will fall back to 1.20, EUR/GBP may drop slightly below 0.84

 

① A weaker dollar gave GBP/USD a respite yesterday, but the pair stalled below resistance at 1.2300. ING economists expect GBP/USD to struggle to break through the 1.23 level and fall back to 1.20;

② Investors are advised to stop losses on short positions above 1.2300. However, analysts expect EUR/GBP to retreat slightly below 0.84, confounding GBP pessimists at 1.2192-0.1%

 

5. Goldman Sachs: EUR/USD will fall to parity again in coming months

 

① Goldman Sachs economists believe that the Fed will raise interest rates by 50 basis points at its next meeting. EUR/USD is expected to fall towards parity again. Goldman Sachs economists still think the Fed's next meeting will reduce the rate hike to 50 basis points, but expect the rate hike may be more advanced;

② However, given that the market expects the Fed to cut interest rates next year, there are still upside risks to inflation and rate hike expectations in the coming months

 

6. Commerzbank: Downside risks to the pound remain high

 

①While the foreign exchange market still seems to believe that the US economy is likely to have a soft landing, the UK may face the risk of a hard landing. Commerzbank economists expect the pound to struggle to rise. The Bank of England said on August 4 that it expected a more prolonged recession in the UK from the end of this year. Rising energy costs are a key reason for the Bank of England to sharply raise its inflation forecast;

② Of course, the Bank of England also wants to keep inflation under control. However, everything depends on how Europe's energy crisis develops. But the BoE's (rate hike) course is not set in stone, so downside risks to the pound remain high.