Foreign Exchange Weekly Review: Powell's speech caused the US dollar to fall sharply, and the market's cautious mood further heated up
The U.S. dollar index has fallen sharply in the past week. On August 27, after Fed Chairman Powell’s speech, the decline widened across the board. Powell said that this year may begin to reduce the scale of bond purchases, but will not rush to raise interest rates, so as to ease the market’s impact on policymakers. Concerns about tightening monetary policy.

The US dollar index has fallen sharply in the past week. On Friday (August 27), after Fed Chairman Powell’s speech, the decline widened across the board, because Powell said that this year may begin to reduce the scale of debt purchases, but will not rush to raise interest rates, thereby alleviating market Policy makers will soon tighten their concerns about monetary policy.
The U.S. dollar index fell 0.82% on a weekly basis, the highest touched 93.5120, the lowest touched 92.6292, and closed at 92.68. There is a demand for the technical form to step back on the 92.13 support range. Investors are also more cautious about the dollar. Powell believes that if the US economy improves as expected, it may be appropriate to start slowing down the pace of asset purchases this year. However, Powell said that the timing and pace of the reduction should not be interpreted as a signal of when interest rates will begin to rise.
Delta epidemic casts a shadow over the outlook
The main concern of investors is the spread of Delta's new coronavirus variants on a global scale. The epidemic is bound to have an impact on the upcoming European manufacturing survey data.
Some analysts believe that although the Delta variant virus may boost the dollar’s safe-haven appeal, it may also undermine the Fed’s plan to reduce its stimulus measures during the epidemic before the end of the year.
A strategist from Mitsubishi UFJ Financial Group (MUFG) said in a note: "Risk aversion will support the U.S. dollar. Although the Fed’s cautious stance should reduce the U.S. dollar’s gains, our year-end foreign exchange rate It is predicted that some adjustments will be required, and the amount of depreciation required for the dollar will be revised below."
Powell hinted that it might start to reduce support before the end of the year but was silent about raising interest rates
Earlier, the Chairman of the Federal Reserve (Fed/FED) Powell hinted in a highly anticipated speech that the Fed may begin to reduce large-scale support before the end of the year, not as early as many people in the market thought.
Powell said that significant progress has been made in achieving full employment. He believes that if the US economy improves as expected, it may be appropriate to start slowing down the pace of asset purchases this year.
However, Powell stated at the Fed’s Jackson Hole annual seminar that the timing and pace of the cut should not be interpreted as a signal of when interest rates will begin to rise.
Gregory Anderson, global head of foreign exchange strategy at Bank of Montreal Capital Markets, said that his speech showed that Powell did not take the hawkish stance that some Fed officials did.
About 15 minutes before Powell’s speech, the dollar began to fall. Earlier, St. Louis Federal Reserve Bank President Brad reiterated his hawkish view that he hoped that the Fed would start reducing its asset purchase plan as soon as possible and complete the reduction before the first quarter of next year.
On Friday (August 27), the US dollar index fell 0.41% to 92.6889, which fell below the August 26 low.
The euro to US dollar rose 0.37% to 1.1795 US dollars, showing its first fall in five trading days on Thursday; within 30 minutes after Powell’s speech, euro futures trading volume jumped to the highest level since July 13; traders pointed out August 13 The daily high of 1.1805 is the key pivot.
Karl Schamotta, director of the global product and market strategy department of Cambridge Global Payments, said that the dollar fell because market participants significantly lowered their expectations for the trajectory of the Fed's long-term policy tightening.
David Petrosinelli, a senior trader at Insperex, said that Powell clearly wants to separate quantitative easing from "rate hikes," and he stated this very clearly.
Jim O'Sullivan, chief U.S. macro strategist at TD Securities, pointed out in the report that although the dollar may continue to weaken in the short term, "the decline may be short-lived and the magnitude is very limited."
The National Bank of Canada Wealth Management expects that the euro will rise against the US dollar, but future resistance remains. Maintain a cautious stance. A member of the European Central Bank’s Executive Committee reiterated that inflation pressures are expected to weaken next year, and the current level indicates that there will be no change in monetary policy. Position, stated that it does not support a substantial appreciation of the euro, and that the euro follows the depreciation trend of other major currencies to a certain extent;
(Daily chart of the euro against the dollar)
On Friday (August 27), the U.S. dollar fell 0.53% against the Canadian dollar to close at 1.2620. The evolution of the epidemic caused economists at the National Bank of Canada to postpone their expectations for interest rate hikes. But the bank predicts that once the current new crown epidemic has passed, the US dollar/Canadian dollar exchange rate will reach 1.22.
Analysts at the bank said, "We still believe that the Bank of Canada will stay ahead of the Fed in reducing quantitative easing and potential interest rate hike timing. The Bank of Canada is expected to raise interest rates in the second quarter of 2022. Therefore, we believe that in the foreseeable future , Short-term interest rates will still benefit Canada."
The analyst also pointed out: "So far in the third quarter, most commodities are still rising, employment still shows that Canada's national economic growth is higher than the trend level, and the epidemic has not put excessive pressure on the medical system. However, the evolution of the epidemic has led us to The evaluation of coronary heart disease has been postponed. We expect that once the current wave of Delta mutant virus has passed, the US dollar against the Canadian dollar will fall to 1.22."
(Daily chart of USD/Canadian dollar)
On Friday (August 27), the New Zealand dollar rose 0.91% against the U.S. dollar to close at 0.7011. ANZ said that the New Zealand dollar against the U.S. dollar is still supported by the expected rise in official cash profits. After local people have imposed restrictions on the delta virus The world is full of optimism.
The hawkish remarks made by a New Zealand official on Wednesday showed that the market believes that the probability of raising interest rates in October is about 90%, which should also help support carry trades. Although all this sounds optimistic, it still has to be done day by day. Go on, because New Zealand has not gotten out of the delta virus predicament.
(New Zealand dollar against the US dollar daily chart)
Prospects
Next week will usher in September. In terms of economic data, focus on the Eurozone Consumer Confidence Index data in August, China’s August official manufacturing PMI data, US August ADP employment data, US July trade account data, and US August data. Non-agricultural employment report data.
In terms of events, Focus on OPEC and non-OPEC oil-producing countries held the 20th ministerial meeting, and focused on Fed Bostic’s speech on the themes of "Achieving an Inclusive Economy" and "Intertwined: Economic Opportunities for All."
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