The US dollar index is adjusted significantly after rising to 105 in May, but it resumed its uptrend after continuing to fall to 101.30 near the 50-day line. Afterwards, the Chairman of the Fed, Powell had to raise interest rates by 0.75% at the mid-June interest rate meeting in view of the latest inflation data continuing to rise. The US exchange rate index turned down again from a high level, but the decline was relatively mild this time. The US exchange rate remained at around 104.50 at the time of writing. According to the statistics, seven major central banks discussed interest rates in June. Except for the eurozone and the bank of Japan, the US, UK, Switzerland, Canada and Australia raised interest rates by 0.25% to 0.75% respectively. The European Central Bank is expected to reduce liquidity in July. With global inflation still not under control, it is believed that interest rate increments will come one after another.

Facing a severe inflation environment, central banks have also become more aggressive in raising interest rates, and half a per cent may have become the basic market. It seems that inflation in Canada accelerated from 6.8% to 7.7% in May. The market estimates that there is more than an 80% chance of raising interest rates by 0.75% in July. Investors are increasingly worried that inflation remains unchecked. Once the US interest rate is raised by 0.75% in the next two meetings, the U.S. federal base rate will soon hit 3%, and the interest rate may reach 3.5% by the end of the year. In this case, the economy will be severely affected. The Chairman of the Fed, Powell mentioned at a congressional hearing that the bureau is determined to reduce inflation, and the action of raising interest rates will continue until inflation falls. He also acknowledged the possibility of a recession. It is worth noting that the Russian-Ukrainian war is an important factor causing this sharp rise in inflation. At present, the two sides are still fighting fiercely in the Donbas region of Eastern Ukraine. The analysis in Western indicates that the war may last for years. However, the relationship between Europe, the United States and Russia has further deteriorated, and there is no possibility of negotiation in the short term. Since Russia and Ukraine are both major exporters of agricultural products, raw materials and energy, the war has severely affected the supply, resulting in a sharp rise in commodity prices. The effect of the central bank's action of raising interest rates may not be the same as in the past, but it will have a greater impact on the economy.

The cumulative interest rate increment by the Federal Reserve so far has reached 1.5%, which leads to most major central banks. In addition, the progress of future interest rate increments is relatively clear, so the US dollar still has an advantage. However, the market’s worries about the local economic recession have also increased significantly. In the view of the technical trend, the long-term upward trend has not changed, but there seems to be selling pressure above 105, and there may be short-term adjustments. The current 50-day moving average of 103 is worth paying attention to. It can still be bought at a low level before it falls, but it is not recommended to chase high for the time being.

Patrick Law

General Manager of Hantec Group