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Market News Foreign exchange trading reminder: G7 finance ministers focus on global market volatility and inflation blame all on Russia
Foreign exchange trading reminder: G7 finance ministers focus on global market volatility and inflation blame all on Russia
In early Asian trading on May 23, the U.S. dollar index hovered around 102.90; the U.S. dollar index fell more than 1.4% last week, as investors were uneasy about the possible impact of the Fed's measures to suppress inflation on the economy, which worsened risk sentiment on Wall Street.
2022-05-23
12274
In early Asian trading on Monday (May 23), the U.S. dollar index hovered around 102.90; the U.S. dollar index fell more than 1.4% last week, as investors were uneasy about the possible impact of the Fed's measures to suppress inflation on the economy, making Wall Street's risk sentiment deterioration.
The greenback has been supported by investors seeking safety in recent months as markets tumbled across markets amid fears of soaring inflation, a hawkish Federal Reserve and the fallout from the Russia-Ukraine conflict. However, the rally came to an abrupt end last week as heightened volatility in global financial markets and the dollar's highs in recent months prompted investors to turn to safe-haven currencies such as the yen and Swiss franc.
Finance ministers of major economies pledged to keep a close eye on financial markets and pledged to tighten monetary policy further after the recent fall in global markets, blaming Russia entirely for the current inflation shock.
According to a communiqué released on Friday, the G7 "will continue to monitor the markets closely given recent volatility". The central bank "will continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent, clearly communicated manner to ensure inflation expectations continue to be well anchored, while taking care to protect the recovery."
The host of the meeting, German Finance Minister Christian Lindner, told reporters that "inflation is a huge danger to economic development, and we are committed to controlling inflation", with a "very independent" central bank shouldering a "very, very big responsibility".
The meeting of G7 finance ministers near Bonn comes as confidence in the global economy is waning and the tragedy of Russia's invasion of Ukraine continues.
"With inflation at multi-decade highs in most of the G7 countries as a result of Russia's invasion of Ukraine leading to sharp increases in commodity, energy and food prices, the G7 central banks are closely monitoring the impact of price pressures on inflation expectations," they said.
While officials did not explicitly address the risk of stagflation in the communique, the combination of soaring inflation, stagnant growth and rising unemployment, as Lindner and U.S. Treasury Secretary Janet Yellen have previously said, was an important topic of discussion.
"It's time for the dollar to take a breather after its recent rally," Capital Economics' Jonas Goltermann said in a note.
Juan Perez, head of trading at Monex USA, said, "We're definitely seeing the dollar a bit higher and there's room for other currencies to rise as the outlook will gradually improve if the global economy comes out of the woods and recovers from its poor first half performance," other Safe-haven currencies gained last week as global equities came under pressure, although European stocks recovered some of their losses on Friday.
Sterling rose 0.1% against the dollar on Friday, after rising 1.98% last week, its biggest weekly gain since December 2020, as the latest economic data suggested markets may not need to sharply cut expectations for a Bank of England rate hike.
18:00 ECB Governing Councilor Hernandez de Cos delivered a speech
22:15 ECB Governing Councilors Holzmann, Nagel and Bank of England Governor Bailey delivered speeches.
22; 30 Speeches by ECB Governing Councilor Villeroy and IMF Managing Director Georgieva.
Crédit Agricole: ECB must support exchange rate with tangible policy action
Valentin Marinov, head of G10 FX research at Crédit Agricole, said traders were traditionally dismissed if the ECB commented on the exchange rate without concrete policy, and last year officials said they had the tools to prevent further euro appreciation and damage inflation, but these comments have little lasting effect. "Most of the time, words have little effect. From now on, to boost the euro, if verbal intervention is to be effective, it must be supplemented by tangible policy actions to support the exchange rate."
JPMorgan Asset Management said every 5 percent drop in the euro's trade-weighted index could boost inflation by 0.5 percentage points.
Piper Sandler Global Asset Allocation: The expected path of Fed policy has shifted down
Benson Durham, head of global asset allocation at Piper Sandler, said, “The expected path of Fed policy has shifted down, however, there is still a lot of uncertainty in the market [for inflation and growth] and it’s tough for the Fed right now, they really need to Forge ahead.”
Piper Sandler's model estimates that the 10-year yield should be around 3%. Durham said it was reasonable to expect between 2.5% and 3.5% in the coming quarters.
Researcher: Bank of Canada will continue to aggressively raise interest rates
Wang Youxin, a senior researcher at the Bank of China Research Institute, told reporters that due to geopolitical conflicts and other factors, the rapid rise in international commodity prices has driven up domestic inflation in Canada, making economic recovery more difficult, and at the same time increasing the cost of living for consumers. In order to prevent inflation from continuing to rise, the Bank of Canada will continue to vigorously raise interest rates.
"Businesses are now facing challenges on many fronts and CEOs are increasingly anticipating a recession," Dana Peterson, chief economist at the Big Business Federation, told the media.
Most U.S. CEOs are preparing for a recession
The Measure of CEO Confidence, released jointly by the Conference Board and the Business Council, has declined for the fourth consecutive quarter and fell to its lowest level since the start of the pandemic. The survey object mainly includes a total of 133 CEOs from listed companies.
"Recession fears are real, and history shows that rapid rate hikes are often followed by recessions," said Mike Sommers, CEO of the American Petroleum Institute.
Joe Brusuelas, chief economist at RSM Accounting Firm (RSM), said fears of an excessive recent recession are overblown. Brusuelas, however, said a soft landing for the Fed is almost impossible. "The Fed is trying to wear boxing gloves through the needle, which reduces its latitude to act without harming the real economy," he said. Still, the pessimism of these CEOs increases the risk of a recession.
The greenback has been supported by investors seeking safety in recent months as markets tumbled across markets amid fears of soaring inflation, a hawkish Federal Reserve and the fallout from the Russia-Ukraine conflict. However, the rally came to an abrupt end last week as heightened volatility in global financial markets and the dollar's highs in recent months prompted investors to turn to safe-haven currencies such as the yen and Swiss franc.
Finance ministers of major economies pledged to keep a close eye on financial markets and pledged to tighten monetary policy further after the recent fall in global markets, blaming Russia entirely for the current inflation shock.
According to a communiqué released on Friday, the G7 "will continue to monitor the markets closely given recent volatility". The central bank "will continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent, clearly communicated manner to ensure inflation expectations continue to be well anchored, while taking care to protect the recovery."
The host of the meeting, German Finance Minister Christian Lindner, told reporters that "inflation is a huge danger to economic development, and we are committed to controlling inflation", with a "very independent" central bank shouldering a "very, very big responsibility".
The meeting of G7 finance ministers near Bonn comes as confidence in the global economy is waning and the tragedy of Russia's invasion of Ukraine continues.
"With inflation at multi-decade highs in most of the G7 countries as a result of Russia's invasion of Ukraine leading to sharp increases in commodity, energy and food prices, the G7 central banks are closely monitoring the impact of price pressures on inflation expectations," they said.
While officials did not explicitly address the risk of stagflation in the communique, the combination of soaring inflation, stagnant growth and rising unemployment, as Lindner and U.S. Treasury Secretary Janet Yellen have previously said, was an important topic of discussion.
"It's time for the dollar to take a breather after its recent rally," Capital Economics' Jonas Goltermann said in a note.
Juan Perez, head of trading at Monex USA, said, "We're definitely seeing the dollar a bit higher and there's room for other currencies to rise as the outlook will gradually improve if the global economy comes out of the woods and recovers from its poor first half performance," other Safe-haven currencies gained last week as global equities came under pressure, although European stocks recovered some of their losses on Friday.
Sterling rose 0.1% against the dollar on Friday, after rising 1.98% last week, its biggest weekly gain since December 2020, as the latest economic data suggested markets may not need to sharply cut expectations for a Bank of England rate hike.
Looking Ahead Monday
18:00 ECB Governing Councilor Hernandez de Cos delivered a speech
22:15 ECB Governing Councilors Holzmann, Nagel and Bank of England Governor Bailey delivered speeches.
22; 30 Speeches by ECB Governing Councilor Villeroy and IMF Managing Director Georgieva.
Institutional view
Crédit Agricole: ECB must support exchange rate with tangible policy action
Valentin Marinov, head of G10 FX research at Crédit Agricole, said traders were traditionally dismissed if the ECB commented on the exchange rate without concrete policy, and last year officials said they had the tools to prevent further euro appreciation and damage inflation, but these comments have little lasting effect. "Most of the time, words have little effect. From now on, to boost the euro, if verbal intervention is to be effective, it must be supplemented by tangible policy actions to support the exchange rate."
JPMorgan Asset Management said every 5 percent drop in the euro's trade-weighted index could boost inflation by 0.5 percentage points.
Piper Sandler Global Asset Allocation: The expected path of Fed policy has shifted down
Benson Durham, head of global asset allocation at Piper Sandler, said, “The expected path of Fed policy has shifted down, however, there is still a lot of uncertainty in the market [for inflation and growth] and it’s tough for the Fed right now, they really need to Forge ahead.”
Piper Sandler's model estimates that the 10-year yield should be around 3%. Durham said it was reasonable to expect between 2.5% and 3.5% in the coming quarters.
Researcher: Bank of Canada will continue to aggressively raise interest rates
Wang Youxin, a senior researcher at the Bank of China Research Institute, told reporters that due to geopolitical conflicts and other factors, the rapid rise in international commodity prices has driven up domestic inflation in Canada, making economic recovery more difficult, and at the same time increasing the cost of living for consumers. In order to prevent inflation from continuing to rise, the Bank of Canada will continue to vigorously raise interest rates.
"Businesses are now facing challenges on many fronts and CEOs are increasingly anticipating a recession," Dana Peterson, chief economist at the Big Business Federation, told the media.
Most U.S. CEOs are preparing for a recession
The Measure of CEO Confidence, released jointly by the Conference Board and the Business Council, has declined for the fourth consecutive quarter and fell to its lowest level since the start of the pandemic. The survey object mainly includes a total of 133 CEOs from listed companies.
"Recession fears are real, and history shows that rapid rate hikes are often followed by recessions," said Mike Sommers, CEO of the American Petroleum Institute.
Joe Brusuelas, chief economist at RSM Accounting Firm (RSM), said fears of an excessive recent recession are overblown. Brusuelas, however, said a soft landing for the Fed is almost impossible. "The Fed is trying to wear boxing gloves through the needle, which reduces its latitude to act without harming the real economy," he said. Still, the pessimism of these CEOs increases the risk of a recession.
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