Bonda Asia: Fed officials make hawkish remarks, dollar index rebounds to close higher

foreign exchange documentary platform- European Central Bank Executive Board member Isabel Schnabel said quantitative easing programs should be used mainly in times of crisis, as the costs of these programs may be more apparent than other instruments in its reserves. "Asset purchases can be a powerful tool when financial marekts are in turmoil," Schnabel said in a speech on quantitative easing in Tokyo on Tuesday. "Outside of these periods, however, central banks need to carefully assess whether the benefits of asset purchases outweigh the costs." Still, "the effectiveness of quantitative easing in stimulating aggregate demand depends on the authorities," she said. "The costs of quantitative easing may be higher than other policy instruments." The ECB is understood to have started large-scale asset purchases in 2015 to boost inflation, which has become too slow. The central bank later launched a separate program during the COVID-19 pandemic. Assets held peaked at around 5 trillion euros ($5.40 trillion), most of which were government debt. And starting in 2023, policymakers began to shrink assets while raising interest rates to curb price spikes. And, when some of the reinvestment that supported the epidemic ends in the middle of the year, this drawdown will accelerate further.

Separately, Minneapolis Fed President Kashkari said Tuesday that the Fed's policy stance is restrictive, but policymakers have not completely ruled out further rate hikes. "I don't think anyone has completely given up on rate hikes," Kashkari said at an event in London on Tuesday. "I think the chances of us raising rates are low, but I don't want to take anything off the table." Kashkari echoed comments he made in an interview earlier Tuesday, when he said officials should wait for more evidence that inflation is cooling before cutting rates, especially given the strong labor market and a resilient economy. " Wage growth remains reasonably strong relative to what we think is ultimately consistent with our 2 per cent inflation target, "he said, adding that" we have time to assess how much downward pressure we are putting on demand before making any new policy decisions ".

The data that needs to be paid attention to today include Germany's Gfk consumer confidence index in June, the euro zone's quarterly adjusted M3 annual rate of money supply in April, and the preliminary annual rate of Germany's CPI in May.

Dollar index

The US dollar index fluctuated upward yesterday, and the daily line ended slightly higher. The spot exchange rate traded near 104.60. In addition to short covering, which provided a certain support for the exchange rate, the hawkish remarks made by Federal Reserve officials during the period further cooled the Fed's expectations of lowering the price, which was also an important factor supporting the rise of the US dollar index. Minneapolis Federal Reserve President Kashkari said that the possibility of raising interest rates was not completely ruled out. In addition, the market's lingering risk aversion also provided a certain support for the exchange rate. Today, pay attention to the pressure situation around 105.00, and the support below is around 104.00.

EUR/USD

The euro fluctuated downward yesterday, and the daily line ended slightly lower. The spot exchange rate traded near 1.0860. In addition to profit-taking, which weighed on the exchange rate to a certain extent, the rebound of the US dollar index supported by hawkish remarks from Federal Reserve officials was also an important factor in pressuring the euro to fall. In addition, the three-year inflation expectations announced by the Eurozone fell during the period, and the European Central Bank's interest rate cut expectations also weighed on the exchange rate. Today, pay attention to the pressure situation around 1.0950, and the support below is around 1.0750.

GBP/USD

Sterling fluctuated downward yesterday, closing slightly lower on the daily line, and the current exchange rate traded near 1.2760. In addition to profit-taking and technical selling near the 1.2800 mark formed a certain pressure on the exchange rate, the dollar index Federal Reserve officials' hawkish remarks and the market risk aversion and other positive factors supported by the rally also posed a certain pressure on the pound. However, the economic data released by the UK during the period performed well, limiting the room for the exchange rate to fall. Today, pay attention to the pressure situation around 1.2850, and the lower support is around 1.2650.