Foreign exchange trading reminder: Investors buy riskier currencies, the dollar falls, and uncertainty about UK economic growth increases

In early Asian trading on Friday (June 3), the U.S. dollar index was now at 101.77; the U.S. dollar fell across the board on Thursday, reversing gains in recent trading days, as stronger risk sentiment prompted investors to turn to higher-yielding currencies.



Global stocks rose on Thursday after recent weakness, as investors bet that Saudi Arabia could boost crude output, cooling oil prices, helping to balance concerns about soaring inflation and tightening monetary policy.

John Doyle, vice president of trading at Monex USA, said there were a few factors that were negative for the dollar, but it was mostly risk sentiment, with news that Saudi Arabia could produce more oil and the easing of virus restrictions helping to boost risk sentiment and negative for the safe-haven dollar.

Cleveland Fed President Loretta Mester said he favors raising rates by 50 basis points each this month and next, but starting in September, the pace of rate hikes could be faster or slower depending on inflation. If monthly inflation data provide convincing evidence that inflation is falling ahead of the September FOMC meeting, the pace of rate hikes could slow. But if inflation fails to moderate, then a faster pace of rate hikes may be necessary; one would need to see "compelling evidence" that inflation is falling, including a few months of declines in data, before it can be concluded that inflation has peaked Conclusion, so far have not seen.

U.S. private payrolls rose much less than expected in May, data showed, suggesting demand for labor is starting to slow amid rising interest rates and tighter financial conditions, but job vacancies remain extremely high.

Riskier currencies such as the Australian dollar and New Zealand dollar rose, both up 1.3% and 1.16%, respectively. The U.S. dollar was down about 0.6% against the Canadian dollar a day after the Bank of Canada raised interest rates and opened the door to a faster rate hike. The dollar fell 0.5% against the Swiss franc after Swiss prices posted their biggest rise in 14 years in May, making Switzerland the latest country in the world to be hit by higher fuel and food prices.

Friday ahead

Institutional view

JPMorgan: Quantitative tightening won't put upward pressure on fed funds rate until mid-2023

While the Fed's balance sheet normalization began this month, the ensuing drawdown in bank reserves won't materially tighten financial conditions and put upward pressure on the federal funds rate for quite some time. Strategist Alex Roever said the spread between the effective federal funds rate and the rate on reserve balances should hold steady as banks are well-reserved and will remain so "for some time." JPMorgan estimates that at least $750 billion in reserves could be wiped from the system without affecting the federal funds rate, a threshold that could be reached by mid-2023.

Another Wall Street tycoon sings about the economy, the president of Goldman Sachs said that all kinds of shocks are unprecedented

The president of Goldman Sachs issued a similar gloomy forecast on the economic outlook to JPMorgan Chase CEO Jamie Dimon, warning of tough times ahead due to a series of shocks to the global economy.

Goldman Sachs President John Waldron said at an investor conference on Thursday, “The environment right now is a tricky, if not the most complex and uncertain of my career. The shocks to the system are unprecedented for me. of".

Waldron's remarks echoed Dimon's stern warning on Wednesday, which warned investors to prepare for an economic "hurricane." Waldron said he wouldn't "use any weather analogies," but he was concerned that inflation, changes in monetary policy and the risk of a Russian invasion of Ukraine could stifle the global economy. Market conditions are tougher. It's not consistent with what I've been talking about. One possible outcome is that things will start to slowly get worse because you're going to see demand destroyed and CEOs become less confident, which is a fit Reasonable predictions, we are carefully watching the relevant signals.”

Rabobank: Dollar sell-off will be relatively short-lived

Jane Foley, head of foreign exchange strategy at Rabobank, said, “I can clearly hear stock market analysts talking enthusiastically again that risk appetite in the stock market is gradually returning. But I’m not going to buy stocks because these are just a series of bad news. In this environment, the dollar's sell-off would be relatively short-lived.
In interviews with 60 other foreign exchange strategists, they believe the dollar will weaken slightly over the next 12 months. But while the euro, yen, pound and Swiss franc are likely to appreciate over the next 12 months, strategists expect none of the currencies to regain ground lost so far this year.

JPMorgan: Uncertainty over UK growth backdrop grows

JPMorgan strategist Francis Diamond said, “There has been an increase in uncertainty about the backdrop for UK growth. The market is wondering what this uncertainty means for the Bank of England. I think the Bank of England is balancing inflation control with the economy. Growth moves are failing more and more.” The difference between the UK and the US, some strategists say, is that UK inflation is harder to come down and largely out of the Bank of England’s control: Russia-Ukraine conflict After the outbreak, energy prices soared. "