After bottoming out in mid-July, the US dollar has maintained an upward trend and has risen to around 105.50 at the time of writing (22/9). The strength of the US dollar is still driven by two factors: fundamentals and monetary policy. After central banks of various countries continue to raise interest rates, global economic growth will inevitably slow down. Among developed countries, the economic performance of the United States remains quite resilient, its fundamentals are clearly superior, and market concerns about a recession in the local economy have dropped significantly. On the contrary, individual countries, such as the United Kingdom and Germany, still have the possibility of recession. 

In terms of monetary policy, continued interest rate hikes have caused inflation to fall from highs. Although there is still some distance from the normal target level, considering the balanced economic performance, most central banks have begun to pause raising interest rates and signaled that the tightening cycle is coming to an end. The latest example is that the Bank of England decided to remain on hold even though inflation was high above 6%. Although the euro zone with a weak economy continued to raise interest rates by 0.25% in September. But it also hinted that this may be the last time to tighten monetary policy. On the contrary, after the US Federal Reserve's interest rate meeting in September, most members believed that it was appropriate to raise interest rates again this year although it kept interest rates unchanged as expected. The dot plot shows that there is a high chance of one more interest rate increase during the year. The Federal Reserve expressed a tougher policy stance, pushing US bond interest rates and the U.S. exchange rate index higher. Therefore, both monetary policy and economic performance, are positive for the US dollar exchange rate. 

The US dollar is doing well, non-U.S. currencies are under overall pressure, and the euro is barely holding on to 1.06. The pound fell to a low of 1.22 due to the central bank's monetary policy tilt to support the economy and the suspension of interest rate increases. The downside risk in the market outlook is still relatively high. However, it should be noted that the US dollar index may encounter a lot of resistance at 105.80 and beware of the possibility of a phased adjustment in the US dollar. Governor Kazuo Ueda, the only Bank of Japan that maintains an ultra-loose monetary policy, recently put forward assumptions for policy adjustments for the first time and hinted that there may be enough data to make a decision before the end of the year. However, the yen did not rebound significantly, and fell to 148.50 instead. However, US. Treasury Secretary Yellen recently pointed out in a rare move that if Japan intervenes to ease exchange rate fluctuations and not to affect the exchange rate, she understands and is cautious about the U.S.'s tacit approval of intervention in the currency market. On the day of writing, the Bank of Japan will announce the results of its interest rate meeting, and it is generally expected that the policy will remain unchanged. However, if the central bank has any hint of policy adjustment, be careful of changes in the short-term trend of the yen exchange rate. You can pay attention to the resistance of the US dollar at 149, with support at 144.50.

Patrick Law

Chief Operating Officer of Hantec Group