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Market News Foreign exchange trading reminder on November 3: The US dollar strengthens and the Australian dollar plummets, pay attention to the Federal Reserve interest rate
Foreign exchange trading reminder on November 3: The US dollar strengthens and the Australian dollar plummets, pay attention to the Federal Reserve interest rate
The U.S. dollar rose slightly on November 2, and the Federal Reserve began a two-day policy meeting. The market is expected to announce that it will begin to reduce the large-scale asset purchase plan implemented at the beginning of the new crown epidemic. After the Reserve Bank of Australia signaled to remain patient with its tightening policy, the Australian dollar fell 1.40% against the US dollar, setting a new low of 0.7420 in the past two weeks. Traders will also focus on the Fed and Bank of England policy announcements later this week, which may strengthen the hawkish shift in global monetary policy.
2021-11-03
10869
On Tuesday (November 2), the U.S. dollar index rose 0.26% to 94.11; the market has fully digested the Fed’s expectation of a reduction statement and will look for any clues about when to start raising interest rates. The RBA’s attitude was more dovish than investors expected, causing the Australian dollar to record its biggest one-day drop since September 29, and it was the first major central bank to hold a meeting this week.
The yield on the US 2-year Treasury bond has entered one of the biggest one-day declines since March 2020. The dovish policy of the Reserve Bank of Australia has triggered a global decline in short-term interest rates.
In recent weeks, investors have digested the expectations that central banks will tighten their policies. They believe that policy makers' concerns about rising inflation are enough to bring the easing policy during the epidemic to an end.
Edward Moya, senior market analyst at Oanda, said that the subject of out-of-control inflation and forcing central banks to take action is unfolding.
Western Union Business Solutions senior market analyst Joe Manimbo said that this will be an interesting thing, considering that the market has become a bit aggressive in digesting multiple interest rate hikes next year, we will have to see if the Fed will hit back on these expectations. The interest rate debate is not all about inflation. It is also about the job market. I think the Fed wants to see the job market really turn around before it admits that policymakers are considering raising interest rates.
The Reserve Bank of Australia did not show the hawkish tendencies that many had expected. The Australian dollar fell 1.29% against the US dollar to 0.7429, the lowest since October 19. Leveraged funds sold the Australian dollar. Previously, the Reserve Bank of Australia Chairman Philip Lowe said that inflation " It may take a while" to return to the target level.
The Reserve Bank of Australia emphasized that the inflation rate is still too low, although it has also cancelled its forecast of an unlikely interest rate hike before 2024 and abandoned its target for the yield of national debt maturing in April 2024.
ING_ analysts said in a research report that, unlike other central banks (such as the recent European Central Bank), the information transmitted by the Reserve Bank of Australia has at least slightly lowered the hawkish bets, but the market still expects the next 12 months. The rate hike was 76 basis points within a month.
The pound fell 0.4% to 1.3606 against the US dollar, the lowest since October 13. The Bank of England will hold a meeting on Thursday, and the market is digesting interest rate hike expectations.
The euro fell 0.23% against the dollar to 1.1579; the yen strengthened before the local holiday in Japan, and traders adjusted positions for the Fed’s policy meeting. The dollar fell less than 0.1% to 113.96 against the yen.
The Swiss franc briefly touched an 18-month high against the euro. The euro once fell as low as 1.0544 Swiss francs, the lowest since May 2020, and then rebounded to 1.05875, rising 0.33% on the day. The Swiss franc has been rising against the US dollar, climbing 0.6% on the day to 0.9146.
Marshall Gittler, head of investment research at BDSwiss Holding, pointed out that demand deposits data show that the Swiss National Bank, which is worried that the strengthening of the Swiss franc will harm the Swiss economy, has not intervened as aggressively as it did when the Swiss franc was rising. This may be the way the Swiss National Bank follows the trend of global monetary policy tightening, intervening only through the exchange rate rather than its policy interest rate.
After the Reserve Bank of Australia signaled to be patient with tightening policies, the Australian dollar fell on Tuesday, more than almost all G-10 currencies. At the same time, the U.S. dollar and yen are higher, and traders are waiting for crucial central bank decisions later this week.
17:30 European Central Bank President Lagarde, Governing Committee Centeno and Costa delivered speeches 02:00 AM Fed announced interest rate resolution 02:30 Fed Chairman Powell held a press conference
This Fed meeting will almost certainly announce the start of debt reduction, including key details such as the speed, timing, and composition of debt reduction. In our view, the Fed is likely to start debt reduction in mid-November or mid-December. However, given the high data on prices and wages, we tend to think that it will start debt reduction in mid-November. What was not mentioned in the press conference will be the key. The committee is not expected to introduce any definition to reach the threshold of full employment. The committee will not have any wording on when to raise interest rates after the debt reduction begins. On the contrary, it will retain the option of raising interest rates immediately after the debt reduction is completed around the middle of next year. The interest rate hike is expected to begin in the third quarter of 2022.
Fed Chairman Powell may not be able to convince the market that the expected debt reduction statement does not mean an imminent interest rate hike. Despite Powell’s best efforts, the market may not regard the timing of future interest rate hikes and debt reduction as two separate decisions, especially if Powell “significantly increases” his assessment of inflation risks and discusses the possibility of speeding up debt reduction. Speed, thereby raising interest rates earlier. We expect that the Fed’s expectations will gradually increase, which will be bullish for the US dollar.
The Monetary Policy Committee launched a heated debate on whether to raise interest rates this week. Financial markets believe that due to a series of hawkish interventions by the Governor of the Bank of England, Bailey, raising interest rates is a foregone conclusion. Our baseline forecast is that the Bank of England will not raise interest rates this week, and if the end of the holiday program does not derail the labor market, it will raise interest rates in December. The currency committee is expected to vote 5-4 in favor of maintaining interest rates unchanged at 0.1%. At the same time, it is expected that the Deputy Governor of the Bank of England Rumsden and the Bank of England member Sanders will support the early termination of the current QE. The remaining members of the committee may vote in favor of maintaining the asset purchase target of 895 billion pounds.
The dollar has risen sharply against the yen since September, hitting a four-year high of 114.69. Economists at Mitsubishi UFJ believe that the currency pair is likely to rise further to 115-116. The tight supply and demand of the US dollar will continue until the end of this year, which may also keep the US dollar stable. However, the sharp rise in commodity prices is expected to weaken early next year, which may provide support for the steady rebound of the yen. It is expected that inflation expectations will stop rising in 2022, and that USD/JPY will return to the starting point of the current upward phase at the end of the 2021 fiscal year (end of March 2022) 110-111
The yield on the US 2-year Treasury bond has entered one of the biggest one-day declines since March 2020. The dovish policy of the Reserve Bank of Australia has triggered a global decline in short-term interest rates.
In recent weeks, investors have digested the expectations that central banks will tighten their policies. They believe that policy makers' concerns about rising inflation are enough to bring the easing policy during the epidemic to an end.
Edward Moya, senior market analyst at Oanda, said that the subject of out-of-control inflation and forcing central banks to take action is unfolding.
Western Union Business Solutions senior market analyst Joe Manimbo said that this will be an interesting thing, considering that the market has become a bit aggressive in digesting multiple interest rate hikes next year, we will have to see if the Fed will hit back on these expectations. The interest rate debate is not all about inflation. It is also about the job market. I think the Fed wants to see the job market really turn around before it admits that policymakers are considering raising interest rates.
The Reserve Bank of Australia did not show the hawkish tendencies that many had expected. The Australian dollar fell 1.29% against the US dollar to 0.7429, the lowest since October 19. Leveraged funds sold the Australian dollar. Previously, the Reserve Bank of Australia Chairman Philip Lowe said that inflation " It may take a while" to return to the target level.
The Reserve Bank of Australia emphasized that the inflation rate is still too low, although it has also cancelled its forecast of an unlikely interest rate hike before 2024 and abandoned its target for the yield of national debt maturing in April 2024.
ING_ analysts said in a research report that, unlike other central banks (such as the recent European Central Bank), the information transmitted by the Reserve Bank of Australia has at least slightly lowered the hawkish bets, but the market still expects the next 12 months. The rate hike was 76 basis points within a month.
The pound fell 0.4% to 1.3606 against the US dollar, the lowest since October 13. The Bank of England will hold a meeting on Thursday, and the market is digesting interest rate hike expectations.
The euro fell 0.23% against the dollar to 1.1579; the yen strengthened before the local holiday in Japan, and traders adjusted positions for the Fed’s policy meeting. The dollar fell less than 0.1% to 113.96 against the yen.
The Swiss franc briefly touched an 18-month high against the euro. The euro once fell as low as 1.0544 Swiss francs, the lowest since May 2020, and then rebounded to 1.05875, rising 0.33% on the day. The Swiss franc has been rising against the US dollar, climbing 0.6% on the day to 0.9146.
Marshall Gittler, head of investment research at BDSwiss Holding, pointed out that demand deposits data show that the Swiss National Bank, which is worried that the strengthening of the Swiss franc will harm the Swiss economy, has not intervened as aggressively as it did when the Swiss franc was rising. This may be the way the Swiss National Bank follows the trend of global monetary policy tightening, intervening only through the exchange rate rather than its policy interest rate.
After the Reserve Bank of Australia signaled to be patient with tightening policies, the Australian dollar fell on Tuesday, more than almost all G-10 currencies. At the same time, the U.S. dollar and yen are higher, and traders are waiting for crucial central bank decisions later this week.
Wednesday preview
| time | area | index | The former value | Predictive value |
| 09:45 | China | October Caixin Service PMI | 53.4 | 53.1 |
| 17:30 | U.K | October Markit Service Industry PMI Final Value | 58 | 58 |
| 18:00 | Eurozone | September unemployment rate (%) | 7.5 | 7.4 |
| 20:15 | America | Number of ADP employed in October (ten thousand) | 56.8 | 40 |
| 22:00 | America | Final monthly rate of durable goods orders in September (%) | -0.4 | -0.4 |
| 22:00 | America | Monthly rate of factory orders in September (%) | 1.2 | 0 |
| 22:00 | America | October ISM non-manufacturing PMI | 61.9 | 62 |
| 22:30 | America | Changes in EIA crude oil inventories in the week ending October 29 (10,000 barrels) | 426.8 | 200 |
| 22:30 | America | Changes in EIA refined oil inventories in the week ending October 29 (10,000 barrels) | -43.2 | -110 |
| 22:30 | America | Changes in EIA gasoline inventories as of the week of October 29 (10,000 barrels) | -199.3 | -100 |
17:30 European Central Bank President Lagarde, Governing Committee Centeno and Costa delivered speeches 02:00 AM Fed announced interest rate resolution 02:30 Fed Chairman Powell held a press conference
Summary of Institutional Views
Economist Anna Wong: What the Fed did not disclose in debt reduction will be the key
This Fed meeting will almost certainly announce the start of debt reduction, including key details such as the speed, timing, and composition of debt reduction. In our view, the Fed is likely to start debt reduction in mid-November or mid-December. However, given the high data on prices and wages, we tend to think that it will start debt reduction in mid-November. What was not mentioned in the press conference will be the key. The committee is not expected to introduce any definition to reach the threshold of full employment. The committee will not have any wording on when to raise interest rates after the debt reduction begins. On the contrary, it will retain the option of raising interest rates immediately after the debt reduction is completed around the middle of next year. The interest rate hike is expected to begin in the third quarter of 2022.
Bank of America: The Fed's debt reduction is expected to gradually increase, which will be bullish for the US dollar
Fed Chairman Powell may not be able to convince the market that the expected debt reduction statement does not mean an imminent interest rate hike. Despite Powell’s best efforts, the market may not regard the timing of future interest rate hikes and debt reduction as two separate decisions, especially if Powell “significantly increases” his assessment of inflation risks and discusses the possibility of speeding up debt reduction. Speed, thereby raising interest rates earlier. We expect that the Fed’s expectations will gradually increase, which will be bullish for the US dollar.
Analyst Hanson looks forward to the Bank of England's interest rate decision: interest rate hike is not a certainty
The Monetary Policy Committee launched a heated debate on whether to raise interest rates this week. Financial markets believe that due to a series of hawkish interventions by the Governor of the Bank of England, Bailey, raising interest rates is a foregone conclusion. Our baseline forecast is that the Bank of England will not raise interest rates this week, and if the end of the holiday program does not derail the labor market, it will raise interest rates in December. The currency committee is expected to vote 5-4 in favor of maintaining interest rates unchanged at 0.1%. At the same time, it is expected that the Deputy Governor of the Bank of England Rumsden and the Bank of England member Sanders will support the early termination of the current QE. The remaining members of the committee may vote in favor of maintaining the asset purchase target of 895 billion pounds.
Mitsubishi UFJ: It is expected that the US dollar against the yen will peak at the end of the year and begin to weaken from 2022
The dollar has risen sharply against the yen since September, hitting a four-year high of 114.69. Economists at Mitsubishi UFJ believe that the currency pair is likely to rise further to 115-116. The tight supply and demand of the US dollar will continue until the end of this year, which may also keep the US dollar stable. However, the sharp rise in commodity prices is expected to weaken early next year, which may provide support for the steady rebound of the yen. It is expected that inflation expectations will stop rising in 2022, and that USD/JPY will return to the starting point of the current upward phase at the end of the 2021 fiscal year (end of March 2022) 110-111
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