Foreign exchange trading reminder: the European Bank next week or interest rate hike 50 basis points, the dollar fell to a new low of more than a week, the yen fell before the Bank of Japan resolution

On April 25, Beijing time, the Asian market morning, the US dollar index continued its overnight decline, once hit a new low since April 14 to 101.20. The dollar fell to a low of more than a week against major currencies in generally light trading on Monday, as investors are still digesting the expectations of the Federal Reserve to cut interest rates this year. Although the market generally expects the Federal Reserve to raise interest rates at next week's policy meeting, the European Central Bank raised interest rate expectations by 50, helping the euro rise to a high in more than a week, while the dollar fell to a new low in more than a week.

In Monday's trading, the dollar index fell as low as 101.33 before closing 0.35 percent lower at 101.35. Joe Manimbo, a senior market analyst at Convera in Washington, said: "The dollar is struggling to consolidate last week's gains as upcoming data are likely to show slower U.S. growth and lower inflation, which will underpin the case for a mid-year pause in interest rate action.

Fed policymakers are widely expected to raise rates by another 25 basis points at next week's meeting, but they are thought to pause in June. The interest rate futures market has also priced in a cut of about 50 basis points before the end of the year.

On Monday, the euro hit a high of 1.1049 against the dollar, and finally closed up 0.49% at 1.1044. On Tuesday, the euro hit a high of 1.1064 against the dollar, a new high since April 14. Since hitting a 14-month high of 1.1075 earlier this month, the euro has returned to above 1.10 against the dollar for the first time. In addition to the Federal Reserve, the European Central Bank will also hold a meeting next week, and is also expected to raise interest rates by 25 basis points, while it is also possible to increase by 50 basis points. Inflation and growth data for the euro area will also be released later this week.

On April 24, Schnabel, the executive director of the European Central Bank, said that the possibility of the European Central Bank raising interest rates by 50 basis points next week cannot be ruled out, and the final rate of interest rate hikes depends on economic data. He also believes that the view that the European Central Bank needs further interest rate hikes is acceptable. The economic data released so far show that the economy is more resilient than expected, and the first signs of interest rate hikes are already seen.

On Monday, the dollar rose to a two-session high of 134.73 against the yen, and finally closed up 0.07% at 134.22.

Markets await Friday's BoJ meeting, the first chaired by Kazuo Ueda, who is widely expected to maintain the BoJ's current ultra-loose yield curve control policy and has reassured markets since taking over from Haruhiko Kuroda at the start of the month that any change in policy would not happen quickly.

Boosted by the Bank of England's interest rate hike expectations, the pound closed up 0.29% against the dollar on Monday at 1.2469. In early Asian trading on Tuesday, the exchange rate continued to rise, rising 0.3% to a new high of 1.2506 in more than a week.

Goldman Sachs analysts said Monday that they expect the Bank of England to raise interest rates in January and possibly again after that as it struggles with stubbornly high inflation.

Investors currently see a 98% chance that the Bank of England will raise rates by 25 basis points to 4.5% on May 11, and see a 50% chance of two more 25 basis point hikes by August, which would take bank rates to 5%.

The dollar closed 0.56% lower at 0.8867 against the Swiss franc on Monday, hitting an intraday low of 0.8867, a new low in nearly a week. The Riksbank will meet on Wednesday, although Barclays said the market has priced in the possibility of the Riksbank raising interest rates by 50 basis points and is unlikely to help the krona much beyond limiting its downside.

Tuesday's key data and events

Institutional Perspectives Summary

1. United Overseas Bank: If the Australian dollar rebounds against the US dollar beyond 0.6730, it is expected to reverse its decline.

① Economists at UOB said that downward momentum for the Australian dollar against the US dollar appears to be building, but any decline could face strong support at 0.6660.

② From the upstream perspective, if the Australian dollar can break through 0.6730 against the US dollar, it will indicate that the accumulation of downward momentum has subsided

2. Societe Generale: Investors should go long the euro against the yen before the Bank of Japan meeting;

① Societe Generale said that investors should go long the euro against the yen before the Bank of Japan policy meeting, because the central bank may hold back;

② Analyst Olivier Korber wrote in a report: "Given the bearish momentum of the dollar and the rebound in the euro area economy in the first quarter, we believe that a long euro-yen strategy would benefit the most from the Bank of Japan staying put;"

③ He pointed out that this is more tactically attractive than going long the dollar against the yen. Korber said that if the Bank of Japan does not make a major policy adjustment and gives little or no guidance for action later this year, the dollar/yen could approach 140.

3. Analysts: Calls to give up the dollar are growing louder, but the dollar remains king.

On April 24, market analyst Penny Chen wrote that more and more countries from Brazil to South East Asia are calling for the use of currencies other than the US dollar in trade.

To be clear, IMF data show that although the dollar's share of central banks' foreign exchange reserves has fallen from more than 70% in 1999, the dollar still dominates global foreign exchange reserves

4. Goldman Sachs: The Reserve Bank of Australia may resume interest rate hikes in the coming months.

Goldman Sachs analysts have warned that Australian inflation may not fall as much this year as expected, in part due to a sharp increase in immigration, which has increased demand and pushed up rents sharply.

② Goldman Sachs analyst Andrew Boak said: "Despite a range of uncertainties over the outlook for interest rates and inflation, immigration supports our view that the RBA will need to resume rate hikes in the coming months to keep inflation on a sufficiently downward trajectory."

③ He expects to raise interest rates by 25 basis points each in July and August, which is in sharp contrast to market expectations, which believe that there is only a 50% chance of another rate hike.