shine trader limited reports:
At present, evidence of the dominance of the US dollar in the market can be seen everywhere. For example, the yen fell against the US dollar, and the US dollar / yen once rose to 112.8, the highest level since the end of 2018. According to the latest data of the Commodity Futures Trading Commission, the US dollar long position of leveraged funds rose to the highest in more than a year. In addition, the risk reversal index of Bloomberg dollar index shows that investor sentiment is close to the highest level since the first wave of the epidemic.
Because traders still expect the fed to start reducing the scale of bond purchase this year, even if the US September employment report is far less than expected, it has not affected the trend of the US dollar. Moreover, instead, the market interpreted the inflation signal in the report as further evidence that US interest rates will rise sooner or later, which will boost the dollar.
What do professionals think?
Since the Fed’s policy meeting from September 21 to 22, bond yields have been rising sharply. In early Asian trading, the yield of U.S. 10-year Treasury bonds rose 5 basis points to 1.65%. As of press time, the yield of 10-year US bonds was 1.614%.
Jane Foley of Rabobank and other strategists said that with the rise of US bond yields, the market demand for emerging market assets remains low, and the US dollar is expected to rise further. John Hardy of Saxony bank believes that the dollar may “make life difficult for bears in the fourth quarter” and predicts that the market will eventually begin to take seriously the Fed’s debt reduction plan.
Most strategists expect the US dollar to be particularly strong against so-called low interest currencies such as the euro and the yen, as the central banks of these countries are expected to lag behind the Federal Reserve in raising interest rates.
Jeremy stretch of Commercial Bank of Canada said: “the pace of the Federal Reserve starting to reduce the scale of bond purchase is getting closer and closer, while other central banks are still a long way from this goal. Central banks such as the European Central Bank may remain on the sidelines in the next two or three years, so this will eventually benefit the long position in the US dollar.”
Is the dollar a safe haven?
It is reported that the high point of the US dollar this year was set in September. At that time, investors were looking for a safe haven from the dual impact of slowing global economic growth and rising inflation. As the energy crisis continues to disrupt markets, the need for protection may boost the dollar again.
Kevin thozet, a member of carmignac Investment Committee, said that the unprecedented surge in energy prices is not only damaging the euro, but also a key factor driving the strength of the dollar. Over the past month or so, he has been increasing his exposure to the dollar. It is reported that the exchange rate of the euro against the US dollar has been hovering near the low point since July 2020, partly due to the increasing strength of the US dollar.
Meera Chandan of JPMorgan Chase said weaker global economic growth forecasts, coupled with rising inflation, made the dollar a more attractive bet. “In this context, investors are more inclined to hold dollars than high beta currencies sensitive to economic growth and other defensive currencies such as the yen.”
When the global situation is difficult, foreign exchange traders have always looked to the yen and the Swiss franc for stability. The US dollar as a safe haven is a relatively new phenomenon. However, stretch of Commercial Bank of Canada said that with unparalleled liquidity and expanding interest rate advantages, the US dollar has become a very attractive hedging place during market turmoil.
In addition, Mazen Issa, senior foreign exchange strategist at Dow Jones securities, said that the Fed’s policy may bring advantages to the dollar in the coming months, not just relative to the traditional safe haven. It will also benefit from the seasonal advantage of the US dollar against other G10 currencies in the fourth quarter.