Lao Zheng said that the | the dollar rebound is limited

Per reporter: Zheng Buchun Per editor: Jia Yunke

This week, the dollar rebounded, but with limited strength. The main reason for the dollar's rebound this week is that some institutions have raised their expectations for the number of Fed interest rate hikes this year. From a weekly perspective, the dollar index has weakened in the past five weeks, but the upward trend has not been broken. Although the market fully expects the Fed to raise interest rates in March, the overall performance of the US dollar in recent weeks has not been too strong due to overcrowded LONG positions, follow-up buying has not kept up for a while, and the tightening tendencies of rival currencies have strengthened.

The dollar rebounded slightly

As of around 20:00 Beijing time on Thursday, the dollar index was provisionally reported at 95.63 points, and it has temporarily risen by 0.49% so far this week. Although there has been a rebound, the overall chart has been corrected for five weeks.

The U.S. Department of Commerce announced on Wednesday that the number of new housing starts in December 2021, adjusted for seasonal factors, translates into an annualized monthly increase of 1.4%, and the number of construction permits for the month increased by 9.1% (month-on-month), both of which are better than expected. The dollar fell before the data was released, and after the data was released, it reduced the decline, but it did not rise excessively, after all, these two sets of data are far less important than inflation or employment data.

U.S. Treasury yields have recently moved significantly higher in anticipation of a march rate hike, but yields have begun to rally slowly since Wednesday. The U.S. 10-year yield hit a new two-year high of 1.902 percent on Wednesday, but then fell to 1.8539 percent.

Although it is difficult for the US Treasury yield to rise for a while, market participants believe that it is still expected to move higher after the consolidation, and the market believes that the US 10-year bond yield will most likely rush above 2.0% during the year.

Next week, the Fed will hold its first interest rate meeting in 2022, and the market believes that there will be no interest rate hikes for the time being, but it is believed that the Fed will definitely communicate with the market, and the Fed will try to make the market expect interest rates to rise in March as soon as possible. Another key focus for the Fed at next week's meeting is likely to be how to smoothly achieve a quantitative easing (QE) policy that ends in March.

In terms of the number of rate hikes, most people believe that the Fed will raise interest rates 4 times during the year, and some believe that they will raise interest rates six or seven times. Obviously, the market's expectations for the number of interest rate hikes in the Fed this year have been raised in the past two weeks, but they cannot withstand the strengthening of the expectation of interest rate hikes in rival currencies and some other negative factors, so the dollar rally is more hesitant.

Euro support increased slightly

Non-U.S. currencies, led by the euro, remain weak overall, but they seem to have some resistance to falling in the short term, for mixed reasons.

First, inflationary pressures in countries or regions where most non-U.S. currencies correspond are increasing. In other words, the market is not only expecting the Fed to turn to tightening, but also most non-U.S. central banks.

Second, China's recent stability maintenance policies have been frequent, so some investors in the foreign exchange market have bet on it, such as the rise of some commodity currencies, and the flow of funds into emerging markets indirectly related to China, which generally weakens the attractiveness of the US dollar and indirectly benefits non-US currencies.

Third, ukraine-related developments are also in favour of non-U.S. currencies for the time being, as risk aversion has eased recently.

Fourth, the market currently believes that the panic caused by Omikeron will eventually calm down. With the fatality rate falling in Omilon, investors are turning their attention to the possibility that the outbreak is coming to an end. If the pandemic ends, the relatively sluggish eurozone will recover faster, because of its lower base.

Finally, not only are US Treasury yields rising, but most non-US bond yields are also rising, most typical of which are German Treasuries. On Wednesday, the yield of Germany's 10-year bond turned from negative to positive for the first time in three years, and the highest rushed to 0.025%, a milestone rise, although not large, but it is a great stimulus to investors' mentality.

At present, some people in the market are beginning to suspect that the ECB may "raise interest rates in September this year", earlier than previously speculated that "it will raise interest rates in October".

With the exception of German bonds, the yields on the rest of eurozone bonds are also rising. Moreover, bond yields from many countries outside the eurozone have also risen.

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