On Monday (May 9), the US dollar index is now at 103.74. The US dollar index once hit a 20-year high of 104.0741 on Friday, driven by the demand for hedging.
Last Thursday, the stock market fell sharply due to concerns about the aggressive tightening policy of the Federal Reserve, and the European currency weakened due to concerns about regional economic growth.
However, as investors assessed the extent to which the Fed's hawkish stance had been reflected in the dollar, and some analysts suggested that inflation might be approaching its peak, the dollar reversed some of its gains.
Data released last Friday showed that the employment growth in the United States in April exceeded expectations. The average hourly wage rose 0.3% after rising 0.5% in March.
This reduced the year-on-year increase in wages to 5.5% from 5.6% in March. Peter Cardillo, chief market analyst at Spartan capital securities in New York, said, "the good news is that wages are not rising as fast as before, which should begin to quell this speculation. The market will have to realize that perhaps inflation is peaking." the dollar index reached 104.07, the highest since December 2002, and then fell back to 103.64.
Juan Perez, head of trading at money USA, said that wage increases were still low, and inflation was the main focus of all prospects.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said on Friday that if the supply chain problems did not begin to subside, the Fed would have to raise interest rates more aggressively and face the risk of recession.
He reiterated that policymakers are paying close attention to how much higher interest rates need to be than neutral interest rates.
The next major focus of the US economy will be the consumer price index (CPI) released on Wednesday.
According to the median forecast of economists surveyed by Reuters, prices will rise at an annual rate of 8.1% in April, slightly lower than the 8.5% in March.
The euro was also boosted by the relative hawkish comments of ECB officials on Friday. Willerowadgallo, member of the European Central Bank's Governing Council and President of the Bank of France, said that the European Central Bank should raise the deposit rate to a positive value this year. His remarks showed that he supported raising interest rates at least three times in 2022.
Nagel, President of the German central bank and European Central Bank Management Committee, also said that the time window for the central bank to raise interest rates in response to record inflation was slowly closing, suggesting that he supported raising interest rates as soon as possible.
The Australian dollar fell across the board on Monday. The Australian dollar fell 0.31% against the US dollar to US $0.7051, and fell 0.18% against the yen to 92.18; Previously, due to the sharp rise in commodity prices, the Australian dollar was one of the currencies with the largest increase in the first quarter of 2022.
Summary of institutional views
Baosheng, Switzerland: the euro will rise in the next 12 months
Stephanie, an economic research analyst at Burson research in Switzerland? Kennedy said that in the next 12 months, given that the European Central Bank will have begun to raise interest rates, the euro may appreciate against the dollar at that time.
"Although the US dollar should remain strong in the coming months, the focus should turn to the interest rate hike of the European Central Bank by the end of the year." Kennedy said that together with the decline in commodity prices, this should make the euro rise in the next 12 months. Kennedy predicts that the European Central Bank will raise interest rates for the first time in December and increase the deposit rate by 0.75% from the current -0.50% by the end of 2023.
Analyst: the labor participation rate in the United States fell sharply in April, laying the groundwork for the Federal Reserve to raise interest rates significantly in the future
Analysts pointed out that the U.S. April nonfarm payrolls report released last Friday was in line with expectations, and the unemployment rate increased by 0.1 percentage points compared with expectations, which was somewhat disturbing.
However, what makes investors more vigilant is that the labor participation rate in the United States shows signs of a significant decline, from the expected 62.5 to the actually announced 62.2.
Under the recovery of the epidemic, more and more skilled workers choose not to work, while older workers choose to retire early, which has hidden dangers for the U.S. job market.
The current situation is that recruiters still need more workers to expand production, while skilled people are unwilling to work, but the skills of candidates are insufficient, which makes it difficult for recruiters to recruit satisfactory employees.
They can only recruit people in the talent market, which in turn leads to vicious competition for talents, thus raising wages, pushing up inflation, and making the Federal Reserve's road to lower inflation more difficult and long.
UOB: it is expected that the target interest rate of U.S. federal funds will rise to 2.50-2.75% by the end of 2022
Given that the FOMC meeting in May made it clear that it would continue to raise interest rates to combat inflation, and Powell made it clear that further interest rate increases of 50 basis points would be considered in the next few meetings.
We now expect to raise interest rates by 50 basis points faster in June and July. It is still expected that interest rates will be increased by 25 basis points at each meeting for the rest of this year.
This increase in interest rates means that the cumulative increase in 2022 will be 250 basis points, raising the interest rate to the range of 2.50-2.75% by the end of 2022 (previously predicted to increase by 200 basis points to 2.00-2.25%).
Maintain the prediction of two interest rate hikes of 25 basis points in 2023. By the middle of 2023, the final interest rate will reach 3.00-3.25% (previously predicted to be 2.50-2.75%).
Deutsche Bank: the German economy is expected to stagnate in the summer
Deutsche Bank's leading indicator of the German economy, the early bird index, rose to 0.79 in April, close to the highest level in history, partially offsetting the decline in March.
Ralph solveen, a senior economist, said that this was because the weakening euro and falling real interest rates were boosting the economy, not just making up for the impact of the weak global economic environment.
However, supply bottlenecks and rising energy prices overshadowed these factors. The conflict between Russia and Ukraine has led to a sharp rise in energy prices, which means that the German economy will basically stagnate this summer.
Although the early bird index shows that the German economy is in a very good condition, the German economy is unlikely to expand in the next few months.