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Market News Foreign exchange trading reminder: Fears of Fed policy mistakes help the dollar on a rising track, the euro is affected by the rising risk of geopolitical uncertainty

Foreign exchange trading reminder: Fears of Fed policy mistakes help the dollar on a rising track, the euro is affected by the rising risk of geopolitical uncertainty

On May 16, the U.S. dollar index is now at 104.57. The U.S. dollar recorded its sixth consecutive weekly rise last week, reaching as high as 105.0234, as investors are still worried about the slowdown in global economic growth, high inflation and the path of the Fed’s interest rate hike. Fears of recession or stagflation. Data last week showed some signs that inflation is starting to fall, albeit slowly.

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2022-05-16
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In early Asian trading on Monday (May 16), the U.S. dollar index was now at around 104.54. The U.S. dollar rose for the sixth consecutive week last week, reaching as high as 105.0234, as investors were still worried about the slowdown in global economic growth, high inflation and the Federal Reserve The path of interest rates has raised concerns that policy mistakes could lead to recession or stagflation. Data last week showed some signs that inflation is starting to fall, albeit slowly.



U.S. import prices were unexpectedly flat in April as lower oil costs offset gains in food and other products, further suggesting that inflation may have peaked. Other data from the University of Michigan showed a preliminary reading of consumer confidence in early May fell to its lowest level since August 2011, as concerns about inflation persisted.

Despite the recent inflation data, Cleveland Fed President Loretta Mester said that inflation would need to remain subdued for "months" before Fed officials can safely conclude that inflation has hit a top. She added that if the data did not show improvement, she would consider backing a faster rate hike at the September meeting.

"The question is where are we going to find a recovery and how do we negotiate what's going to happen," said Joseph Trevisani, senior analyst at FXStreet.com in New York. "The Fed isn't ready to cut rates to help the economy, and it's raising rates, which is a very Unusual situation."

The U.S. dollar is on track for its sixth straight weekly gain, its longest run of the year, having gained more than 9% so far in 2022.

The euro fell for a sixth straight week on concerns that Russia's invasion of Ukraine hampered the economy and a rally in the dollar, although the European Central Bank is widely expected to start raising interest rates in July, but it is not expected to raise rates as fast as the Federal Reserve.

On the 15th local time, Finland officially decided to apply to join NATO, and the paper application is expected to be submitted to NATO headquarters this week.

According to Agence France-Presse, on the 15th local time, Finnish President Niinisto and Finnish Prime Minister Marin announced that the Finnish President and the Ministerial Committee on Foreign and Security Policy of the Government approved Finland's application to join NATO.

"This is a historic day, and a new era is beginning," Niinisto and Marin said.

According to the British Sky News, Niinisto said that after the outbreak of the Russian-Ukrainian conflict, joining NATO will maximize Finland's defense security.

Allegedly, the Finnish parliament will meet on the 16th to consider Finland's application to join NATO.

Finnish Foreign Minister Haavisto previously stated that the paper application for joining NATO will be formally submitted to the NATO headquarters in Brussels on the 18th.

According to Swedish TV, at about 5 pm local time on May 15, Sweden's ruling Social Democratic Party announced that the Social Democratic Party Committee has officially decided to support Sweden's membership in NATO. Monster Trading Inc

The Swedish Social Democratic Party made the above decision at an internal meeting of the party committee held on the same day. "The Social Democratic Party Committee has officially decided today that it will work hard to obtain Sweden's application for NATO membership," the SPD said in its press release. The statement added that if the application is approved by NATO, the Social Democrats will work to ensure "Sweden's single objections to the deployment of nuclear weapons and permanent bases on Swedish soil” can be retained.

It is reported that the Swedish parliament will hold a parliamentary debate on Monday after the Social Democrats announced their formal decision to join NATO. The government is expected to decide on NATO's application at a special session after the parliamentary debate, before submitting an application for membership.

Looking Ahead Monday





Institutional view


Goldman Sachs expects weaker euro to increase inflationary pressures in euro zone as energy imports are mostly denominated in dollars

Goldman Sachs Group Inc. said large swings between the euro and the U.S. dollar typically do not affect consumers, but that could soon change due to the high share of U.S. dollar-denominated energy imports.

Analysts led by Jari Stehn, chief European economist at Goldman Sachs, wrote in a note on Friday that if the euro's downward trajectory against the dollar continues, it could lead to a rise in headline inflation in Europe of as much as 0.5 percentage point per year over the next two years. . That would increase pressure on the European Central Bank to raise rates more quickly.

"While our results confirm that broader trade-weighted exchange rate volatility has a systemic effect on consumer inflation through the pricing chain in the longer term, the current weakness in EUR/USD may still play a role," the analysts wrote. , because energy is currently the biggest driver of import inflation, and the vast majority of energy imports into the euro area are denominated in dollars.”

The euro has fallen more than 8 percent against the dollar this year to near its lowest level in more than five years, not far from parity. Meanwhile, energy prices have soared amid supply concerns over Russia's invasion of Ukraine.

For Europe, these developments are a coincidence: traders expect European inflation to outpace the U.S. for the first time in more than a decade.

"Our pass-through forecast supports our view that the current weakness in the euro will lead the ECB to raise its medium-term inflation outlook in its June staff forecast, which we expect to strengthen Europe relative to the current 'gradual' rate hike path," the report said. The case for the central bank to accelerate policy normalization.”

Bank of America: Mass flight across asset classes

Bank of America strategists say money is flowing out of all asset classes, and that mass flight is accelerating as investors pull out of stocks such as Apple Inc.

In the report, strategists led by Michael Hartnett quoted data from EPFR Global as saying that stocks, bonds, cash and gold all experienced capital outflows in the week ended May 11, and technology stocks experienced the largest outflow this year, reaching $1.1 billion. , second only to financial stocks at $2.6 billion.

"The definition of true capitulation is that investors sell what they like," Hartnett said, citing Apple stock, big tech stocks, the dollar and private equity as examples. The collapse of cryptocurrencies and speculative tech stocks is now comparable to the dot-com bust and the global financial crisis, he said.

Apple is one of the major stocks leading Wall Street's major indexes to new highs after the 2020 pandemic-induced rout, but the stock is now in a bear market, down nearly 10% this week alone. That's a sudden turnaround from six weeks ago when the company's shares were near record highs. The tech-heavy Nasdaq 100 is set for a sixth straight weekly loss, its longest losing streak since November 2012, as investors worry that a hawkish central bank combined with high inflation could trigger a recession.

The benchmark S&P 500 is also already on the brink of a bear market, a 20% drop from a record high. While Bank of America strategists said they expect a near-term rebound, they still see room for further losses in stocks. "Fear and aversion suggest that a short-term bear market rally is likely, but we don't think the ultimate low has been reached," Hartnett wrote, as risk aversion continued to hit all asset classes this week. Equity outflows of $6.2 billion included small inflows into U.S. equities, but they were dwarfed by outflows from European and emerging market equities. A total of $11.4 billion flowed out of bond markets, $19.7 billion out of cash products, and $1.8 billion out of gold.

Funds buying investment-grade, junk-grade or emerging-market bonds saw outflows of $19.3 billion, the largest since April 2020. High-rated bond funds led the way with $11.6 billion in withdrawals. Meanwhile, safe U.S. Treasuries posted their biggest inflows since March 2020.

JPMorgan Chase expects the euro to test parity for the first time in two decades as the impact of the situation in Russia and Ukraine puts pressure on Europe and rising U.S. interest rates boost the dollar.

Analyst Paul Meggyesi cut his one-year forecast for the euro to 1.02 from 1.08. A test of parity is expected, he said. EUR/USD is currently trading around 1.04. Markets are finally starting to accept that the crisis in Ukraine has hit the Eurozone economy disproportionately and poses a threat to the currency, which is what we’ve been thinking since the war, in terms of offsetting the negative impact of stagflation shocks on the Euro. In the end, there is little central bank can do.

Wells Fargo: The Canadian dollar can stay strong

Wells Fargo FX strategist Erik Nelson said the Bank of Canada is one of the "toughest" central banks, possibly even more hawkish than the Fed. So the combination of a hawkish central bank and high oil prices means the Canadian dollar can stay strong.

ANZ: Yen expected to rebound

The main driver of the dollar's strength disappeared as a drop in U.S. stocks pushed Treasury yields lower. Meanwhile, Barclays Securities Japan said the yen's unilateral decline was over. Analysis estimates that the dollar against the yen may return to around 125.

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