The US dollar tried to rebound around 103.50 at the beginning of 2013, but the performance was not satisfactory. The market continues to believe that the Fed will slow down the pace of raising interest rates, especially since the latest hourly wage growth fell from 5.1% to 4.6%, making investors believe that it will help push down inflation. The latest consumer price index reported an annual rate of 6.5%, which has fallen for six consecutive months, falling by more than two percentage points from the peak of 8.8%. The market basically believes that the Fed will only raise interest rates by 0.25% at the February meeting, and many officials have recently expressed their views that they may consider reducing the rate hike rate. However, some big banks are reminded that the battle against inflation is not over yet, and it is still too early for the Fed to declare victory. Interest rates still have rooms to rise, and don't expect to start reducing rates this year. The flexibility of the job market will largely determine whether the U.S. economy can avoid recession and is also the key to influencing the direction of monetary policy.  

The gains had been reduced by half with the recent adjustment of the US dollar index that started in mid-2021, and the inflation trend of other major economies will be similar to that of the United States. Recently, the consumer price index in Canada, the UK and Europe have all dropped. It is believed that the monetary policies of various countries will also be adjusted accordingly. Therefore, it is not appropriate to be too pessimistic about the US dollar. 

The Fed is likely to raise interest rates slightly in February. However, it is estimated that it will maintain a tough stance, forming a gap with the market expectation, or causing the US dollar to fluctuate. Technically, the US dollar may rebound to around 103.50 first. It is better to pay attention to the economy and inflation later. The short-term exchange rate trend is more likely to fluctuate in a range. The Japanese Yen has maintained a strong performance recently. It is mainly because the Bank of Japan unexpectedly loosen the fluctuation range of the yield curve control (YCC) in December. The market further speculates that the central bank will expand the volatility of YCC at the interest rate meeting on January 18, and even withdraw from this policy. Japanese Yen once rose to 128 against the US dollar. However, the committee members at the meeting decided to keep the interest rate unchanged and did not change the YCC fluctuation range.  

Haruhiko Kuroda, Bank of Japan Governor said there was no need to expand the bond target range and more time is needed to assess the impact of the adjustment. The central bank will firmly support the economy. As a result, the market was slightly disappointed and some positions that were short-term speculating on the appreciation of the yen were forced to stop losses. The exchange rate once fell back to 131.50 against the US dollar, which happened to be the 20-day moving average, but quickly rose back to the 128 level. As Haruhiko Kuroda's term of office will expire in April, the market estimates that monetary policy may remain unchanged in the short term. However, the expectation that the central bank will tighten monetary policy later this year has not changed, and the Japanese Yen can still be bought for mid-line deployment after it is adjusted.

Patrick Law

General Manager of Hantec Group