Huitong Network News--The weakness of the dollar since the beginning of the year has baffled investors. High bond yields and optimism about the U. S. economy have not helped the dollar strengthen. What is driving the weakness of the dollar? What are the next key factors for the dollar?
The weakness of the dollar since the beginning of the year has baffled investors. High bond yields and optimism about the U. S. economy have not helped the dollar strengthen. What is driving the weakness of the dollar? What are the next key factors for the dollar?
Last week, many major currencies rose about 2 per cent against the dollar, while the yen rose to 105.55, the biggest weekly gain since July. Although the US index stabilized and consolidated on Monday, hitting a daily high of 89.27, it still failed to change the bearish mood of institutions against the dollar. The UOB global economics and market research team analyzed the outlook of the euro against the dollar, the pound against the dollar, the Australian dollar against the dollar, the New Zealand dollar against the dollar and the dollar against the yen, but was bearish on the dollar against the yen.
Across the foreign exchange market, the decline in the dollar is partly related to the transfer of capital flows, according to TDSecurities. Indeed, in addition to large current account surpluses, demand for overseas assets in the eurozone and Japan is also rising.
A weaker dollar is continuing to be positive for US stocks and the broader emerging markets, as many S & P 500 companies are global and their overseas earnings are driven by currency depreciation. This helps explain the rebound in US and global stock markets.
Alan AlanRuskin of DeutscheBank said the weakness of the dollar, combined with tax reform, and stimulus to fiscal growth remained highly supportive of US equities.
One driver of dollar weakness is the outlook for the US fiscal and external environment. For now, this outweighs fears that rising inflation in the US has prompted the Fed to take more aggressive measures to boost the dollar through broader interest rate spreads.
Normally, higher Treasury yields should boost the dollar. However, gradually eliminating the monetary impact of the unconventional stimulus measures of central banks around the world remains a tricky task.
BNP Paribas (BNPParibas) points out that interpreting and forecasting currency movements is one of the most difficult tasks in economic and market analysis. He added that central banks' efforts at quantitative easing had distorted fundamentals. When the central bank distorts interest rates, interest rates become an unreliable indicator of relative monetary conditions.
How to view the inflation outlook in the Fed's January minutes will be the key to the trend of the US index.
The US central bank will release the minutes of the January Federal Open Market Committee (fomc) meeting in the early hours of Thursday, Beijing time, where it will focus on its views on the inflation outlook.
There was a wave of volatility after last month's policy meeting after data showed US wages grew at their fastest annual rate since 2009 and reacted more optimistically to last week's strong consumer price index (CPI).
Investors generally expect the Fed to raise interest rates at its March meeting. The problem isIf inflation continues to rise, will the minutes show a willingness to raise interest rates further?.
Us tax cuts and a possible increase in government spending will be a key issue for the Fed when assessing the prospect of raising interest rates over the next 12 months and beyond.
As a result, the market fluctuates briefly when analysts discuss the significance of the minutes. Powell, the new chairman of the Federal Reserve, will present his first semi-annual monetary policy report to Congress at the end of this month, setting the tone for the market in March.