Beijing time on Wednesday (September 14) in early Asian trading, the US dollar index rose slightly and is currently trading around 109.98. The U.S. dollar index rebounded sharply on Tuesday after stronger-than-expected U.S. inflation data boosted investor bets that the Federal Reserve will need to continue aggressive rate hikes.

 

 

 

The U.S. dollar index closed up 1.50% at 109.93 on Tuesday, its biggest one-day percentage gain since March 2020, but still below the 20-year high of 110.80 hit last week.

    

U.S. consumer prices unexpectedly rose in August, with core inflation accelerating amid rising rent and health care prices, according to the Labor Department report.

    

"The data was well above expectations," said Karl Schamotta, chief market strategist at Corpay in Toronto. "What is particularly worrying is that core inflation is almost twice as high as expected. That would put the idea of ​​temporary inflation on hold for a while and put a damper on it." Sending U.S. Treasury yields and the U.S. dollar up sharply. Crucially, what we're seeing now is an almost 100 percent chance of a 75 basis point rate hike next week."

    

After the report, traders in interest rate futures abandoned any remaining bets on Fed policymakers slowing the pace of rate hikes next week. They are betting on a third consecutive rate hike of 75 basis points, which will take the Fed's current policy rate range of 2.25-2.5% to 3-3.25%, and the rate contract now also reflects in the September 20-21 meeting There is a 35% chance of an unexpected one-point rate hike.

 

EUR/USD closed down 1.52% at 0.9967 on Tuesday. EUR/USD hit a near one-month high of 1.0197 on Monday. EUR/USD has traded below par on 16 of the past 17 sessions. The economic slowdown in the euro zone continues to be a major negative for the euro.

 

BlackRock, the world's largest asset manager, warned on September 12 that a shortage of energy supplies is expected to push up inflation and drag down Europe's gross domestic product, pushing Europe into a deep recession.

 

On September 13, local time, the European Economic Research Center in Germany released data showing that the economic sentiment index of the euro zone in September was -60.7, down about 6 percentage points from the previous month, showing that the European economic community is generally optimistic about the economic development prospects of the euro zone. pessimistic.

 

USD/JPY closed up 1.19% at 144.53 on Tuesday. Earlier, the yen found support from comments from officials that suggested the government might take steps to counter the yen's excessive weakness.

    

Sterling rose to a two-week high on Monday as data showed Britain's unemployment rate fell to its lowest level since 1974, while wages excluding bonuses rose 5.2%, the highest in the three months to August 2021 growth rate. Sterling eased slightly against the dollar on Tuesday, closing down 1.62% at 1.1491. A slowdown in the UK economy and a cooling of expectations of a rate hike by the Bank of England weighed on the pound.

    

ING said the UK unemployment rate will rise by the end of the year, but a sharp rise is unlikely.

 

At 19:00 on September 22, Beijing time, the Bank of England will announce its interest rate decision and meeting minutes. "The MPC is not ready to raise rates by 75 basis points at its upcoming meeting, which is an important short-term risk for the pound," Goldman Sachs said in a weekly update on foreign exchange strategy. They said the currency The policy committee is likely to hold on to another 50 basis points of interest rate hikes as they factor in the impact of the UK government's recently announced energy price cap, which is expected to significantly reduce UK inflation peaks.

 

 

Key data and outlook for Wednesday

 

 

 

Big things to watch on Wednesday: European Commission President Von der Leyen delivers the EU State of the Union address in the European Parliament, and ECB Governing Councilor Villeroy speaks.

 

Aggregate Viewpoints

 

1. ING Bank: Sterling is temporarily supported, focusing on external factors

 

① ING Bank said that the latest UK employment data was basically in line with consensus expectations and confirmed that the UK job market is still quite tight;

② For the Bank of England, the most critical is that wage growth continued to accelerate may mean more aggressive tightening measures. Sterling is expected to remain supported by external drivers.

 

2. Former IMF economist: The continued appreciation of the dollar may lead to a series of developing countries facing more serious debt problems

 

① Former IMF chief economist Maurice Obstfeld, now a professor at the University of California, Berkeley, and Haonan Zhou of Princeton University wrote in a research paper presented at the conference, “The Fed is determined to keep inflation down. , coupled with the continued appreciation of the dollar, could lead to a string of developing countries facing more serious debt problems. Indeed, the red flags are already flashing;

② On the other hand, if the Fed cannot control U.S. inflation, it will be disruptive in the long run”

 

3. Commonwealth Bank of Australia: EUR/USD may still be back below parity

 

① Commonwealth Bank of Australia (CBA) senior economist and senior currency strategist Kristina Clifton said, "The CPI data is really important for the Fed ... It is likely that the CPI will need to accelerate and be very strong to prompt them to raise interest rates. 75 basis points, if the data is roughly in line with consensus, we would think they will raise rates by 50 basis points;"

②Clifton said, "We definitely see downside for the euro, not upside...expect the euro to fall back below parity and stay there for quite some time, especially when all the issues surrounding energy supply remain unresolved. "

 

4. UOB: Bank of England likely to raise rates by 50 basis points at a later date

 

① UOB economist Lee Sue Ann said further policy tightening is likely to lead the Bank of England to raise the policy rate by 50 basis points at a later meeting. As the cost of living crisis worsens, bank rates have only room to rise a further 50 basis points to 2.25%, after which rate hikes will be suspended;

②Nevertheless, we keep in mind that the BoE has issued a warning that “policy is not on the pre-set path” as the Bank of England expects a recession in the UK to start in the fourth quarter and continue into next year. The Bank of England also raised its forecast for a peak inflation in October to 13.3% as gas prices surged, warning that price gains would remain high.