At the beginning of the Asian market on Tuesday (November 20), the US dollar index rose slightly, but it was not far from the one and a half week low of 96.10 hit overnight; Recently, some Fed officials made cautious remarks on the US economy, indicating that the Federal Reserve may be close to ending its tightening cycle, which has significantly affected the US dollar; Also affected by the risk aversion driven by the overnight sharp fall of more than 3% in the US stock NASDAQ, Gold price It closed higher for five consecutive trading days, hovering around $1221.69/ounce. On the British side, Prime Minister Theresa May insisted on the draft of the Brexit Agreement, warning that pushing her to step down would put Britain at risk of delaying Brexit or leaving without an agreement. In view of the strong opposition of the Eurosceptics at the moment, it is bound to be thorny to pass the agreement in Parliament, and the trend of the pound is volatile.
Italy said that it had no intention to change its budget plan, but the negotiations with the EU were still continuing. It might try to meet the EU rules by selling real estate and reducing waste spending. The euro gained five consecutive positive returns against the dollar.
Dollar bulls tremble, and monetary policy path may be greatly changed in December
William Williams (the third person), chairman of the Federal Reserve of New York, said that the Federal Reserve would continue to gradually increase interest rates in order to extend this round of economic expansion and keep inflation low. Williams reiterated that the strong U.S. economy and job market have prompted employers to hire employees they would not otherwise hire. "Interest rates are still very low. We have raised them, but they are still at a very low level," he said
However, it was noted that he mentioned that the Federal Reserve has no preset monetary policy path and will adjust monetary policy to keep the economy strong under low inflation and maintain the expansion trend for as long as possible. " The interest rate increase bitmap in September shows that under the background that interest rates may be increased four times this year, interest rates may still be increased three times next year, but the words "there is no preset policy path" and "monetary policy will be adjusted" seem to imply that the bitmap expectation in September is too optimistic.
ANZ believes that the Federal Reserve may significantly adjust the dot matrix in December. The bank interpreted that the speech of the Federal Reserve Williams was dovish and decided the policy direction based on data, which was consistent with the recent speech of the Federal Reserve officials. The Federal Reserve may make a significant adjustment to the dot matrix in December, and the path of interest rate increase in 2019 becomes more uncertain. We expect the Federal Reserve to raise interest rates in December this year, and will raise interest rates again in the middle of 2019.
On Friday (November 16), Clarida, Vice Chairman of the Federal Reserve, said that the monetary policy was close to neutral, and he did not believe that the Federal Reserve would raise interest rates too aggressively. In other words, the expectation of raising interest rates to a restrictive interest rate range was broken. He also mentioned that the Federal Reserve needs to incorporate the global outlook into its policy framework. It is not expected that inflation will rise sharply next year, and the cooling of overseas economic activities will lead the Federal Reserve to adopt a more cautious monetary policy.
Also showing a conservative and cautious stance is Powell. In his speech last Wednesday (November 14), he was generally optimistic about the economic outlook, saying that the U.S. economy could grow faster. However, he also listed three potential challenges facing the U.S. economic growth in 2019, specifically the slowing pace of overseas demand, The domestic fiscal stimulus has a diminishing marginal effect, and the lagging economic impact caused by the previous interest rate increase by the Federal Reserve.
Goldman Sachs strategists said in their 2019 outlook report that the US dollar may fall as much as 6% against most competitive currencies in developed markets. As the US economy begins to slow, the impact of tax cuts and loose environment will gradually weaken next year.
As far as I can imagine, Powell did not say so a month ago. He thought that it was unnecessary to worry about whether the Federal Reserve would raise interest rates beyond the neutral interest rate level, because it was far from the neutral interest rate level that neither stimulated nor curbed the economy.
Huitong believes that the recent adjustment of the US Index is related to the subtle change in the attitude of the Federal Reserve officials, which is the change in the median expected interest rate. The author mentioned in the article "The dollar was killed and discouraged by team-mates" that futures traders further cut their bets on the Federal Reserve meeting on December 18-19 on Monday to further raise interest rates.
According to the pricing of interest rate futures, investors expect that the possibility of the central bank implementing its fourth interest rate increase this year at the meeting from December 18 to 19 is 67%, lower than the possibility of more than 75% on November 13.
In addition, the interest margin of Eurodollar futures contracts due in December 2018 and December 2019 fell to 35 basis points, the lowest level since two months, representing that the current market is pessimistic about the market pricing of interest rate increase next year.
(Daily chart of USD index)
It is predicted that the federal fund interest rate will peak in 2019, reaching 2.75-3.0%. The bank's analysts said: "The Federal Reserve will respond to the sharp slowdown of the economy by sharply cutting interest rates in 2020. The market still has a long way to go to digest this expectation."
However, some bulls are still sticking to their guns. Thin, director of monetary strategy at BBH, said that the market's expectations of the Federal Reserve's interest rate increase had changed too quickly and overreacted to the recent comments of the Federal Reserve officials. It is expected that the Federal Reserve will continue to raise interest rates next year.
Italy insists on the budget, but actively communicates with the EU
Italian Economy and Finance Minister Jean Claude Tria said after attending the Eurozone Finance Ministers' meeting on Monday that despite criticism from the EU Executive Committee, Italy will adhere to the 2019 budget plan, but the negotiations are still continuing. Tria described the country's budget plan as "very modest" expansionary.
Last Tuesday (November 13), Italy submitted an adjusted 2019 fiscal budget to the European Union, which did not change the budget deficit in 2019 to maintain 2.4% of GDP in currency, higher than the EU's expected target of 1.5% - 1.7%. Although the EU has repeatedly stressed the importance of abiding by the rules, the Italian side said that this is a clause you made in Rome rather than Brussels, and that it is a necessary choice to increase welfare spending and improve the structural economy. Tightening the money bag is undoubtedly a massacre of Italians.
However, Italy's Deputy Prime Minister Di Meyer, the head of the Five Star Movement Party, recently said that Italy would strive to prevent the budget deficit from further expanding in the future, but only if the reform of the budget can be smoothly promoted. Although Italy has the third highest level of public debt in the world, accounting for 132% of GDP, this figure has remained stable since 2013 and has not continued to expand.
The country may convince the EU that temporary budget overruns can be tolerated by selling real estate, reducing unnecessary waste and signing guarantee clauses, which is a key step in economic reform.
The EU official has not yet publicly commented on the draft, but according to foreign media news, the draft may be evaluated on November 21. It is expected that around this time point, the market may be worried about uncertainty, causing a correction shock to the euro.
(Daily Eurodollar Chart)
The EU releases goodwill, but the Brexit agreement is still fraught with difficulties
This Monday (November 19), the EU's chief representative in charge of the Brexit negotiations said that the draft agreement on Brexit reached between the EU and the UK was "fair and balanced".
Barney said that we are at a decisive moment in this process, and no one should ignore the progress made by the EU and the UK. Last week, Barney briefed the ministers of the 27 member states of the EU on the draft agreement reached last week, and then made the above statement at a press conference. The ministers of the member states basically approved the draft agreement. If the draft can finally be passed by the British Parliament, there will be relatively little resistance in the EU.
British Prime Minister Teresa May finalized the agreement in the EU last week at the cost of the most serious crisis in her career as a prime minister. Several cabinet members, including the ministers who left the EU, resigned. Mei threatened the opposition that the challenge to her leadership would divert the energy from the Brexit negotiations. Her Brexit agreement was the only available option.
In view of the strong opposition of Eurosceptics within the Conservative Party, even if Mei can keep the post of Prime Minister, it is still thorny to get this agreement passed by Parliament.
If the draft is finally blown up, and Brexit without agreement is transacted according to WTO trade rules, it will push Britain, the world's fifth largest economy, into wilderness. The German Economy Minister Altmeier has made it clear on Monday that it is impossible to renegotiate the withdrawal agreement between the EU and Britain in order to cater to the opposition British lawmakers.
Barclays believes that in the absence of an agreement to leave Europe, the pound may fall by 5% - 10%. Of course, there is another option for the UK to request a longer transition period for Brexit. On Monday, the UK Business Secretary Clark said that the UK would not rule out the possibility of continuing the transition period to 2022, rather than the scheduled date of March 29, 2019. This matter will be at the discretion of the UK, which has this option.
(Daily Chart of GBP/USD)
