The US dollar index is approaching a turning point.
2024-08-30
■ If the US dollar index significantly falls below its low point of July 2023, it may raise concerns about further dollar depreciation.
■ The market expects the Bank of Japan to raise interest rates as early as December, while the Bank of England may cut rates again in November. The weak US dollar trend in September may continue.
Looking back at the foreign exchange market in August, it is not difficult to find a trend dominated by the depreciation of the US dollar. The US dollar index (DXY), which measures the strength of the US dollar against major currencies such as the euro, yen, and pound, continued to show a downward trend on its monthly benchmark after last month and hit 100.514 points on August 27, the lowest point since July 2023. Suppose it falls below the psychological threshold of 100 points and below the July 2023 low of 99.578. In that case, it may trigger market concerns about further acceleration of the depreciation of the US dollar. In the DXY index compiled by multiple institutions, the composition ratio of the Intercontinental Exchange shows that the euro accounts for 57.6% of the overall DXY, followed closely by the Japanese yen (13.6%) and the British pound (11.9%). Therefore, the movements of monetary policies in various countries will become the focus of attention.
Federal Reserve Chairman Powell stated at the Jackson Hole Conference on August 23 that "the time for policy adjustment has come," implying that interest rate cuts may begin at the Federal Open Market Committee (FOMC) meeting on September 17-18. The European Central Bank (ECB) started cutting interest rates in June, and further cuts in September are almost inevitable. Still, core members also hold cautious views that more data is needed before deciding to cut interest rates in September. The market's concerns about the deterioration of US employment have intensified, and it is expected that the Federal Reserve's interest rate cuts this year will be greater than those of the European Central Bank, which will drive the euro to appreciate against the US dollar and rebound to the level of 1.12 US dollars since July 2023.
The Bank of Japan recognizes the need to adjust its easing policy from the perspective of sustainability and stability in achieving price targets, and some believe that the decision to raise interest rates will be made as early as December. Although the sharp rise of the Japanese yen, influenced by factors such as the global stock market downturn, has been curbed, the depreciation trend of the yen is not significant. The composite PMI (initial value) released by the UK in August reached its highest level since April, indicating an increase in optimism about the economic outlook. The Bank of England (BOE) is expected to maintain its policy rate unchanged at the Monetary Policy Committee meeting on September 19th, and the market generally expects another rate cut in November. The pound rose to a high of $1.32 against the US dollar, marking the strength of the pound and weakness of the US dollar since March 2022. The weak trend of the US dollar in the foreign exchange market is expected to continue in September.
■ The market expects the Bank of Japan to raise interest rates as early as December, while the Bank of England may cut rates again in November. The weak US dollar trend in September may continue.
Looking back at the foreign exchange market in August, it is not difficult to find a trend dominated by the depreciation of the US dollar. The US dollar index (DXY), which measures the strength of the US dollar against major currencies such as the euro, yen, and pound, continued to show a downward trend on its monthly benchmark after last month and hit 100.514 points on August 27, the lowest point since July 2023. Suppose it falls below the psychological threshold of 100 points and below the July 2023 low of 99.578. In that case, it may trigger market concerns about further acceleration of the depreciation of the US dollar. In the DXY index compiled by multiple institutions, the composition ratio of the Intercontinental Exchange shows that the euro accounts for 57.6% of the overall DXY, followed closely by the Japanese yen (13.6%) and the British pound (11.9%). Therefore, the movements of monetary policies in various countries will become the focus of attention.
Federal Reserve Chairman Powell stated at the Jackson Hole Conference on August 23 that "the time for policy adjustment has come," implying that interest rate cuts may begin at the Federal Open Market Committee (FOMC) meeting on September 17-18. The European Central Bank (ECB) started cutting interest rates in June, and further cuts in September are almost inevitable. Still, core members also hold cautious views that more data is needed before deciding to cut interest rates in September. The market's concerns about the deterioration of US employment have intensified, and it is expected that the Federal Reserve's interest rate cuts this year will be greater than those of the European Central Bank, which will drive the euro to appreciate against the US dollar and rebound to the level of 1.12 US dollars since July 2023.
The Bank of Japan recognizes the need to adjust its easing policy from the perspective of sustainability and stability in achieving price targets, and some believe that the decision to raise interest rates will be made as early as December. Although the sharp rise of the Japanese yen, influenced by factors such as the global stock market downturn, has been curbed, the depreciation trend of the yen is not significant. The composite PMI (initial value) released by the UK in August reached its highest level since April, indicating an increase in optimism about the economic outlook. The Bank of England (BOE) is expected to maintain its policy rate unchanged at the Monetary Policy Committee meeting on September 19th, and the market generally expects another rate cut in November. The pound rose to a high of $1.32 against the US dollar, marking the strength of the pound and weakness of the US dollar since March 2022. The weak trend of the US dollar in the foreign exchange market is expected to continue in September.