Under such an environment, the US dollar is facing the risk of being continuously sold, and the foreign exchange market will usher in a major change!
Under such a big environment, the back market of the US dollar is facing the risk of being continuously sold, and the pattern of the foreign exchange market will usher in a major change! After experiencing a 10% surge in 2018, the US dollar index may have entered a bear market cycle, and the major non-US currencies against the US dollar have started a mid- to long-term uptrend.
Julie’s “small non-agricultural” is futile, the doves send the US Federal Reserve to break the dollar long.
On Wednesday (January 30), US ADP employment data showed that the number of ADP employment in the United States changed by 213,000 in January, with an expected 18.1 million. The previous value of 27.1 million was revised to 26.3 million. Among them, manufacturing employment reached a new high of six years. The data suggests that the US non-farm payrolls data for January, which will be released this Friday (February 1st), has performed well, making the US dollar index continue its gains since European time, hitting a high of 95.98.
However, the US dollar index was unable to rise above the 96 mark on the day and suffered a setback after the Fed’s interest rate decision was announced.
At 03:00 Beijing time on Thursday (January 31), at the first FOMC meeting on interest in 2019, the Fed decided not to raise interest rates temporarily and kept the federal funds rate target range unchanged from 2.25% to 2.5%. At the same time, the Fed issued the strongest signal to suspend interest rate hikes, stating its commitment to be patient with further interest rate hikes, acknowledging the decline in inflation expectations, and downgrading its economic performance from “strong” to “stable”, adding three major commitments to flexible adjustments.
At 03:30 Beijing time, at the press conference, Fed Chairman Powell said that although the Fed still expects the US economy to continue to grow at a very strong rate, “we are now facing some contradictory situations.”
Regarding the issue of contraction, Powell said that the normalization of the balance sheet was “earlier than before, and the final balance sheet would be larger”.
After the Fed and Powell’s above-mentioned dovish wording, the US dollar index continued to fall sharply, hitting a low of 95.25, refreshing the low since January 14.
The Fed’s dove transformation has changed the original foreign exchange market!
In the short six weeks since the December meeting on interest rates, the Fed’s hawkish stance has undergone an unexpected and significant change. From the original insistence on the gradual increase in interest rates to no interest rate hike, and promised to flexibly adjust the contraction. This is the clearest signal that the Fed’s tightening cycle, which has started in 2015, may have ended.
For the ongoing contraction, the Fed also adopted a more dovish stance, indicating that it is prepared to adjust the plan according to economic and financial market development. Powell said the Fed may stop cutting its $4.1 trillion balance sheet ahead of time, making it hold assets larger than previously expected.
After the Fed issued a policy statement, the market’s interest rate hike in September was expected to be around 20%, which is now down to 11%. According to past experience, such a probability is equivalent to not raising interest rates. In addition, the federal funds rate futures show that the probability of the Fed cutting interest rates by 25 basis points by the end of 2020 is close to 50%. In January 2020, the implied yield of the federal funds rate futures fell to about 2.415%; the Fed was about 2.455% before the announcement.
Under such a big environment, the back market of the US dollar is facing the risk of being continuously sold. The pattern of the foreign exchange market will usher in a major change! After experiencing a surge of more than 10% in 2018, the US dollar index may have entered a bear market cycle. The main non-US currency against the US dollar has opened up the mid- to long-term uptrend.
On Friday, the US will announce the January non-farm employment report and the January ISM manufacturing PMI. If the above data is good, it will provide some support for the US dollar; if the overall performance of the data is weak, it will further increase the dollar’s short-term decline. However, the author once again stressed that under the background of the Fed’s turning pigeons, one or a few beautiful economic data could not change the pattern of the dollar’s decline.