Foreign exchange trading reminder on October 19: The U.S. dollar held steady and the New Zealand dollar led the rise, while U.S. bond yields rebounded

On Monday (October 18), the U.S. dollar index rose 0.03% to 93.96. Earlier in the session, with the rise in U.S. bond yields, it had reached a high of 94.17. US factory production in September hit the largest decline in seven months. The continued shortage of global semiconductor supplies suppressed auto production, further proving that supply constraints are hindering economic growth. Supply disruptions have exacerbated concerns about high inflation and heightened expectations that the Fed will need to take action to curb rising prices.

Ronald Simpson, managing director of Action Economics' global currency analysis department, said that the prospect of global central banks being more proactive in responding to rising inflation concerns may put the dollar under some pressure, but the Fed may take action earlier than previously expected, which in turn Bring support.

Bank of America analysts pointed out on Monday that commodity-related currencies such as the Norwegian krone, Canadian dollar and Australian dollar are the best performing currencies since the summer, with the euro and the yen performing the worst due to rising energy prices.

The euro to US dollar climbed 0.08% to 1.1610. It had earlier reached a low of 1.1570 US dollars; the euro has fallen 5% so far this year.

The pound fell 0.18% to 1.3726 against the US dollar, and the two-year British government bond yield jumped 13 basis points to 0.7%; the pound briefly touched a 20-month high against the euro after the Bank of England Governor Bailey issued a new signal indicating that with inflation Risks are rising, and the central bank is preparing to raise interest rates. The euro rose 0.24% against the pound in late trading, to 0.8455 pounds, and fell to 0.8427 pounds earlier.

The yen was close to its lowest level in three years. The dollar rose 0.09% to 114.32 against the yen in late trading, which was close to the 114.46 hit last Friday, the highest since October 2018.

Tan Yanxi, a foreign exchange strategist at Malayan Banking Bhd. in Singapore, said that although the yen may rebound intermittently, as the term "temporary" inflation is increasingly questioned, we expect US yields to decline during this period. Moderately, this may in turn limit the extent to which the yen rises.

The New Zealand dollar rose after data showed that New Zealand’s third quarter consumer price index (CPI) soared at the fastest rate since 2010. The New Zealand dollar closed at $0.7081 against the U.S. dollar, having earlier touched a one-month high of $0.7105.

Preview Tuesday

08:30 Reserve Bank of Australia Announces Minutes of Monetary Policy Meeting
20:05 Bank of England Governor Bailey delivered a speech
20:50 Philadelphia Federal Reserve Chairman Hacker delivered a speech
23:00 San Francisco Fed President Daley delivers a speech at 00:15 AM 2021 FOMC voting committee, Richmond Fed Chairman Barr, gives a speech at 01:00 2021 FOMC voting committee, Atlanta Fed President Bostic delivers a speech early in the morning 03:00 Fed Governor Waller speaks on economic prospects

Summary of Institutional Views

BlackRock: The market has misjudged the Fed's interest rate hike and suggests to continue to reduce its holdings of U.S. debt

Scott Thiel, BlackRock's chief fixed income strategist, said that given all signs that the threat of inflation will be temporary, the bond market’s pricing of the Fed’s rate hike is “too high”, and the Fed is expected to stick to 2023 as shown in the dot matrix. The plan to raise interest rates remains unchanged, because policymakers may not pay much attention to inflationary pressures caused by the epidemic. It is expected that the selling of U.S. Treasury will continue, but the speed must be more cautious. It is recommended to reduce U.S. Treasury holdings in response to interest rate risks. There is still room for growth in the US economy, and the current level of yield does not reflect this.

Bank of America: The yen is still under selling pressure in the fourth quarter, and may even fall to 118 by the end of the year

Paul Ciana, a technical analysis strategist at Bank of America, pointed out in the report that from the head-and-shoulders pattern of a correlation-weighted index, the yen has shown a bear market signal. It is the worst-performing G10 currency this year, and it is against the US dollar in the fourth quarter. The exchange rate may fall further; the yen has depreciated by nearly 10% against the dollar this year, and a measure of the yen's strength relative to other currencies (BCWIJPY) hit a three-and-a-half-year low on Friday.

Bank of America believes that BCWIJPY still has 4% to 5% downside from the current level, and it is bearish to 320; Ciana pointed out that the USD/JPY is on an upward trend, but it is overbought from a single day and weekly perspective. We tend to Long-term long-term USD, rallied from the long position near the 114.35-73 resistance zone, and covered near 112.20/112.40.

History shows that the 5.28% gain of USD/JPY since August this year is still relatively small, and it may replicate the experience of October 2014. After overbought, the decline can be arranged to buy, and the new high at the end of the year will be 115.51 or even 118. ; There is room for upside in the cross currency pair. The euro is expected to rise above the year-to-date high of 134.13 against the yen, and the next resistance is at 137.50.

JP Morgan Chase: The Bank of England is expected to start the interest rate hike cycle next month

JP Morgan Chase advanced its expectations for the Bank of England to raise interest rates after the Bank of England Governor Bailey delivered a speech on Sunday. The bank expects the Bank of England to raise interest rates by 15 basis points in November, followed by 25 basis points in February and August. (Previously, it was expected to start raising interest rates by 15 basis points in February next year). Economist Allan monkss said that Bailey made tough remarks for the second consecutive week, which led the market to expect the Bank of England to adopt a more aggressive monetary policy. One risk with this view is that the Bank of England will instead choose to send a strong signal in November and then take action in December, possibly raising interest rates by 40 basis points at one time (or raising interest rates by 15 basis points in December, and then In February next year, interest rates will be raised by 25 basis points).