Foreign exchange trading reminder on October 7: The Republican Party proposes to raise the debt ceiling in the short term, while U.S. Treasury rises and US dollar gains narrow

On Wednesday (October 6), the U.S. dollar index rose 0.27% to 94.23, rising for the second day in a row; soaring energy prices triggered concerns about inflation and interest rate hikes, suppressing investor interest in higher-risk assets and driving capital flows to safe-haven assets. .

Minh Trang, senior foreign exchange trader at Silicon Valley Bank, said that what you see this week is that more inflation concerns are permeating the entire market. Rising inflationary pressures may adversely affect economic growth and affect how quickly the Fed can raise interest rates. The question is whether this will force the Fed to act faster than expected.

The Fed has stated that it may start to reduce the scale of monthly bond purchases as early as November, and then raise interest rates. The Fed will accelerate its transition from the epidemic crisis policy.

Investors are still anxious about the US debt ceiling negotiations, although the US Senate Republican leader McConnell said that the Republican Party will allow the federal debt ceiling to be extended to December, a move that will avoid historical defaults and a heavy blow to the economy.

The US non-agricultural employment report this weekend is still the focus of investors' attention, and the report may provide clues for the Fed's next move. Institutional surveys show that the non-agricultural employment data released on Friday is expected to show that the job market continues to improve. In September, non-agricultural employment is expected to increase by 473,000. Trang said that if the data is roughly in line with expectations, it will support the dollar trend we have been seeing.

The ADP National Employment Report on Wednesday showed that as the new crown epidemic began to abate, Americans can travel, frequent restaurants, and re-participate in other high-contact activities. In September, private employment in the United States increased more than expected.

The euro fell 0.36% to 1.1556 against the dollar, hitting its lowest level since July 2020; real-money institutions and companies are selling euros; and the 1-year implied volatility of the euro rose to its highest level in a month.

The USD/JPY reduced its decline to nearly unchanged at 111.48, as traders digested the progress of the US debt ceiling issue;

Francesco Pesole, a foreign exchange strategist at ING Bank's London branch, said that the recent weak sentiment was affected by rising energy prices and possible shocks to inflation and the central bank. In view of the upward pressure on inflation, the market has become increasingly skeptical about whether some central banks, especially the Fed, can continue to postpone the normalization of policies. The dangerous combination of tightening monetary policy and slowing economic growth clearly makes investors nervous.

The pound fell 0.34% to 1.3582 against the U.S. dollar. The implied volatility of the currency pair rose to a seven-month high of around 7.9% on Wednesday. The pound fell 0.3% against the U.S. dollar due to soaring energy prices and soaring bond yields. Implied volatility It is an indicator to measure the expected volatility of currency options.

The Reserve Bank of New Zealand raised interest rates for the first time in seven years, suggesting that further interest rate hikes may be needed to curb inflation; however, the strengthening of the U.S. dollar, coupled with the market’s aversion to riskier currencies, caused the New Zealand dollar to fall 1.2% to 0.6877 against the U.S. dollar; ANZ analysis Teacher David Croy said that it was cautious enough to make it sound like a gentle dove.

The Australian dollar fell 0.27% to 0.7272 against the US dollar; the US dollar rose 0.06% to 1.2590 against the Canadian dollar.

On Wednesday, the Central Bank of Poland said in a statement that it raised the main interest rate from 0.1% to 0.5% in response to the surge in inflation, which was earlier than analysts expected and pushed the Polish zloty to rise by about 0.4%.

Thursday preview

time	area	index	The former value	Predictive value
13:45	Switzerland	Unemployment rate without seasonal adjustment in September (%)	2.7	2.7
13:45	Switzerland	September seasonally adjusted unemployment rate (%)	2.9	2.8
14:00	Germany	Monthly rate of industrial output after seasonal adjustment in August (%)	1	-0.5
14:00	Germany	Annual rate of industrial output after adjustment on working days in August (%)	5.7	5
14:45	France	August trade account (100 million euros)	-69.57
16:00	China	September foreign exchange reserves (100 million U.S. dollars)	32321.2	32160
19:30	America	Number of layoffs by challenger companies in September (10,000)	1.57
20:30	America	As of October 2nd, the number of people claiming unemployment benefits at the beginning of the week (10,000)	36.2	34.9
20:30	America	As of the week of September 25, the number of people claiming unemployment benefits (10,000)	280.2	276.5
22:00	Canada	PMI after quarterly adjustment of IVEY in September	66

19:30 ECB announces minutes of monetary policy meeting

Summary of Institutional Views

United Overseas Bank: GBP/USD is expected to remain trading at 1.3460-1.3680, and the Reserve Bank of Australia will raise interest rates until early 2024

UOB technical analysts pointed out that the current pound against the dollar will still be traded in the 1.3460-1.3680 range. The previous day believes that there is room for the first to test 1.3640 before the increase in the risk of correction. After rising to 1.3648, it will slightly fall back and attack the upward trend of 1.3648. Weakened, bearish in the day, but any downtrend may be limited to 1.3580, on the upside, the initial resistance is at 1.3650, and then the important level 1.3680.

UOB analysts said that, as expected, the Reserve Bank of Australia decided to maintain the cash interest rate target at 0.10% at its October meeting, and the foreign exchange settlement balance interest rate at 0%, and the Australian government bond will remain at 0.10% in April 2024. The goal of continuing to purchase government bonds at a rate of 4 billion Australian dollars per week, and at least until mid-February 2022; continue to see the reduction of quantitative easing from February 2022, by then the economic rebound will be obvious. Beginning in September, the total scale of quantitative easing will reach 130 billion Australian dollars, and the scale will be gradually reduced until the end of mid-to-late 2022. At the same time, the Reserve Bank of Australia’s balance sheet continues to soar. As for the cash interest rate target, it is still expected to be the first This increase will only happen in early 2024.

Kwai Bank: The Reserve Bank of New Zealand may raise the official cash rate to 1.5% in mid-2022

The Reserve Bank of New Zealand raised the official cash interest rate from a historically low level, reflecting that its inflation and full employment targets have been "fully achieved", but rising housing prices are still worrying. The Reserve Bank of New Zealand raised the cash rate from 0.25% to 0.5%, as expected, and hinted that it may increase further. Jarrod Kerr, chief economist at Kwai Bank, said that the Federal Reserve Bank of New Zealand is expected to carry out a series of interest rate hikes, raising the official cash rate to 1.5% by mid-2022, and then considering stopping the rate hike. The New Zealand economy is gaining momentum, and the New Zealand Federal Reserve has good reasons to withdraw the stimulus measures.