Major events are piled up! Whether the strong dollar can still "show off its might" The first week of the second half of the year has become the key

Finance Associated Press

2024-07-01 09:36The official account of Cailianpress, a subsidiary of Shanghai Poster Industry Group

Finance Associated Press, June 29 (Editor Xiaoxiang) With Trump's victory in the first round of the U.S. election debate, coupled with high interest rates continuing to provide support for the dollar, a strong dollar seems to be becoming a major problem for many monetary policy makers around the world at the beginning of the second half of the year.

The Bloomberg dollar index had risen for six consecutive weeks, its longest rally since February, although the far-right's lead appeared to be less than expected due to the first round of voting in the French National Assembly election, which led to a pullback during Monday's Asian session. At the same time, after Trump emerged victorious in the first round of the US election, dollar bulls seem to be on track for another key positive.

Antje Praefcke, senior FX analyst at Commerzbank in Frankfurt, wrote: "The growing likelihood of a Trump victory could provide potential support for the dollar in the coming weeks and months. Trump was even more assertive in his first televised debate on Friday. ”

Previously, market participants in the analysis of the direction of the US election, it was widely expected that Trump's victory may be more favorable to the dollar. Alan Ruskin, a strategist at Deutsche Bank, said in the first quarter of this year that "the 'Trump effect' is to some extent defaulted to being positive for the dollar precisely because it is negative for non-US currencies such as the euro and the Mexican peso." Traders recognize that, for different reasons, Trump's impact on trade and geopolitics will be positive for the dollar, at least initially. ”

Deutsche Bank strategists also said again before the first debate of the US election last week that the US election could give the dollar more room to rise, and if the US adopts aggressive protectionist policies, they will consider downgrading their forecasts for the euro against the dollar exchange rate to bring it closer to parity.

Judging by the performance of the global foreign exchange market in the first half of this year, as the dollar index continues to rise, non-US currencies have felt the pressure: the yen has fallen to its lowest level since 1986, and the euro also recorded its worst monthly performance since January last month.

According to one set of statistics, almost all emerging market and developed country currencies depreciated against the US dollar in June.

As it is unclear when the Fed will start monetary easing, the global monetary policy divergence will undoubtedly remain positive for the dollar for now. Tony Rodriguez, head of fixed income strategy at Nuveen, said the combination of slowing economic growth and firm inflation means that the Fed will act very slowly and patiently, which is in favor of a stronger dollar.

And in line with the Fed's cautious approach, the prospect of easing monetary tightening seems increasingly likely to materialize in much of the world as the second half of the year begins. Non-US central bank governors are increasingly worried about downward pressure on the economy, and global policymakers may not be too distracted by the Fed's delay in cutting interest rates, distracting themselves from their own easing.

Currently in Europe, the SNB has cut interest rates twice this year, the ECB has cut rates once, and the Bank of England may also cut rates soon.

This week's series of risk events cannot be ignored

Of course, in the first week of the second half of the year, it may not be easy for dollar bulls to hold on to their gains in the first half of the year and extend their gains further: a series of political and macroeconomic risks this week may bring more uncertainty to the stock and bond markets.

The first is undoubtedly the first round of voting in the French National Assembly elections, which just concluded over the weekend. The euro opened higher in Asian trading on Monday as traders began to digest news that France's far-right party, represented by Marine Le Pen, would have an advantage in the first round of the country's parliamentary election, with signs that the party's lead was not as big as some pre-election polls suggested.

Preliminary results suggest that the far-right National Alliance party leads President Emmanuel Macron's centrist coalition and the left-wing New Popular Front, but may not have the number of votes needed to win an absolute majority after the second round of voting. For now, the focus has shifted to whether the party can secure enough support in the second round of voting on July 7 to gain an outright majority in the National Assembly. Macron and other opponents of the National Alliance are already developing strategies to keep the far-right party out of the center of power.

In addition to France, the United Kingdom will also have a general election on Thursday. The election results are likely to be announced on Friday morning, with opposition Labour expected to easily win a majority. Given that the outcome of the election does not look too uncertain, and that Labour has no plans for massive government spending, the impact on the pound, gilts and UK equities is likely to be slightly positive, but limited.

Investec economist Lottie Gosling said in a note: "Although Labour's support has fallen over the past five weeks, its advantage over the Conservatives has been maintained. With only a few days to go, there should be no surprises other than a resounding victory for the Labour Party on 4 July, so UK financial markets are not expected to see much volatility during the general election. ”

At the central bank and macroeconomic levels, this week has also been marked by risk events.

The ECB will hold its annual symposium in Sintra, Portugal, from July 1 to 3, which has long been regarded by the industry as the "annual meeting of global central banks" hosted by the European Central Bank, on a par with the Jackson Hole annual meeting hosted by the Federal Reserve. Speakers at the annual meeting include Fed Chairman Jerome Powell and ECB President Christine Lagarde, who may reveal some clues on monetary policy.

In the opinion of analysts at JPMorgan Asset Management, the dollar will continue to benefit as long as the Fed keeps borrowing costs high relative to other central banks. However, they cautioned that this support could wane at some point.

The CITIC Securities Research Report said that the Federal Reserve is currently maintaining a neutral stance as a whole, and it is expected that Powell will "exchange time for space" and wait for more good inflation data to curb U.S. demand and inflation.

In addition, on Friday, the regular US non-farm payrolls data released at the beginning of each month will once again meet investors. The report is now expected to show that the U.S. economy added 188,000 non-farm payrolls last month, while the unemployment rate will stabilize at 4%.

Previously, the U.S. unexpectedly added 272,000 non-farm payrolls in May, which once caused the U.S. bond market to suffer a short-term sharp decline. However, a number of recent sets of US economic data have actually shown signs of weakness. The positive trend in inflation, coupled with signs of slowing economic activity, has led many economists to believe that the Fed should be inclined to cut interest rates sooner rather than later.

Michael Pearce, deputy chief U.S. economist at Oxford Economics, wrote in a note to clients over the weekend that "recent signs of weakness in the labor market suggest that Fed officials also need to be concerned about risks to full employment in their areas of responsibility." ”

(Finance Associated Press Xiaoxiang)

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