Foreign exchange trading reminder: the Federal Reserve is still expected to raise interest rates in July, the dollar is strong, and the European Bank is expected to raise interest rates by 25 basis points in June

In early Asian trading on June 8, Beijing time, the dollar index fell slightly and is currently trading around 104.04. The dollar index closed down 0.03% at 104.12 on Wednesday. Traders in Fed funds futures expect a rate hike in July.Sweden's Nordic Bank expects the ECB to raise interest rates by 25 basis points in June and July, bringing the deposit rate to 3.75 percent.。

On June 8, Beijing time, the Asian market morning, the dollar index fell slightly, and is currently trading around 104.04. The dollar index closed down 0.03% on Wednesday at 104.12, which is still relatively strong. Investors are waiting for next week's US May inflation data and the Federal Reserve's interest rate decision.Although interest rate hikes by foreign central banks could weigh on the dollar, the prospect of the Federal Reserve raising rates again in July could limit the decline.

The Federal Reserve is expected to keep interest rates unchanged next Wednesday to assess the impact of recent rate hikes.But federal funds rate futures traders expect a rate hike in JulyNext Tuesday's consumer inflation data is expected to show that U.S. consumer prices rose 0.30% month-on-month in May

"We expect quite a bit of consolidation ahead of next week's Fed decision," said Bipan Rai, head of North American FX strategy at CIBC capital markets. "The consumer price index (CPI) will also be critical to the Fed's decision. We don't see big bets in either direction at the moment, which makes sense to me."

Wednesday's data showed that the U.S. trade deficit rose by the most in eight years in April as imports of goods picked up while exports of energy products fell, a trend that, if sustained, could cause trade to weigh on economic growth in the second quarter.

As US inflation remains above target, traders have largely ruled out expectations that the Federal Reserve will cut interest rates this yearJane Foley, chief strategist at Rabobank, said: "Inflation in the US is persistent and resilient, but so is most of the G10, which means central banks are likely to be cautious."

Lou Brien, market strategist at DRW Trading, said: "The Fed could signal next week that it has not finished raising interest rates, which could dampen the idea that the dollar is going to take a hit because the Fed will be out of step with Canada, Australia and possibly even the European Central Bank at this month's meeting because they still have the idea of doing more."

On Wednesday, the Bank of Canada unexpectedly raised interest rates by 25 basis points, and the dollar plunged about 70 points against the Canadian dollar to 1.3320, and finally closed down 0.23% at 1.3368.

Royce Mendes, Head of Macro Strategy at Tex Jardins Bank of Canada, said monetary policymakers at the Bank of Canada will be watching changes in excess demand, inflation expectations, wage growth and corporate pricing behaviour to determine if further rate increases are needed. That said, they are unlikely to see sufficient progress in restoring price stability until their next rate decision, so this time will not be the last rate hike in this cycle. As a result, the bank continues to lean towards the view that the Bank of Canada will raise rates by another 25 basis points in July, which would take the policy rate to 5 per cent, its highest level since 2001.

The Bank of Canada's June interest rate decision statement removed language from its April decision on how to prepare for further rate increases if needed. The Bank also said it continued to expect CPI inflation to fall back to around 3 per cent in the summer, but stopped referring to a target of gradually reducing inflation to 2 per cent by the end of 2024.

The Australian dollar turned lower on Wednesday, a day after the Reserve Bank of Australia raised interest rates by 25 basis points to an 11-year high of 4.1%. Reserve Bank of Australia President Lowe further warned on Wednesday that further interest rate hikes will be made to curb upward pressure on prices.

The Australian dollar hit its highest level since May 11 at 0.6716 against the dollar earlier on Wednesday, before falling back to close 0.27% lower at 0.6651.Goldman now expects the Reserve Bank of Australia to raise rates by 25 basis points each in July, August and September, bringing the end point rate to 4.85%, compared with a previous forecast of 4.35%.

However, following the Reserve Bank of Australia's decision on Tuesday to raise interest rates by a further 25 basis points, the Australian economy now faces a very real risk of slipping into recession, according to AMP analysis. This is a major potential pressure on the Australian dollar.AMP Limited is an Australian retail wealth management and banking services provider.

The euro closed 0.09 per cent higher at 1.0698 against the dollar on Wednesday as expectations of a rise in interest rates from the European Central Bank helped support the euro.

Jussi Hiljanen, chief dollar and euro rates strategist at Sweden's Nordic Bank, said in a note that the ECB will likely shift its focus to keeping rates at peak levels for a longer period of time, rather than continuing to raise them. After the release of eurozone inflation data in May, the hawks appear to have calmed down and are now less clearly pushing for an autumn rate hike, preferring instead to keep rates at peak levels for a longer period of time.

Sweden's Nordic Bank expects the ECB to raise interest rates by 25 basis points in June and July, bringing the deposit rate to 3.75 percent.。Hiljanen said the eurozone's summer CPI data will be a key factor in determining whether a July rate hike is indeed the last.

Sterling closed 0.07 per cent higher at 1.2430 against the dollar on Wednesday amid pressure from the Bank of England to raise interest rates as Britain's inflation rate this year is set to be the highest in the developed world.

According to the OECD, inflation in the UK this year will be the highest of any advanced economy, with its headline rate forecast at 6.9% in 2023, above the 6.6% average. In the list of the latest OECD Economic Outlook analysis, only Argentina and Turkey are expected to have higher headline inflation this year than the UK. This highlights the pressure on the Bank of England, which raised interest rates by another 25 basis points in May, bringing the base rate to 4.5%. At the time, the central bank recognized that inflation in Quarter 1 this year was "higher than expected", mainly due to higher food prices.

Paul Dales, chief UK economist at Capital Economics, said: "Increasing evidence that price pressures are domestically generated is driving up interest rate expectations. We agree with the market that rates will rise further and have raised our forecast for peak rates by 75 basis points, from 4.50 per cent to 5.25 per cent. Rates will not start falling until the second half of next year."

Thursday's key data and events

Institutional Perspectives Summary

1. Capital Economics: Turkey may need to slash the lira exchange rate significantly;

A significant reduction in the lira is needed to achieve a sustainable improvement in the current account and attract foreign capital, but this could exacerbate inflationary pressures, according to Capital Economics. "A more rapid depreciation of the Turkish lira would be a welcome sign that policymakers are easing their intervention to return the lira to fair value," said Liam Peach, an economist at Capital Economics, in a note. However, the required exchange rate adjustment would be significant, pushing up inflation in Turkey and putting pressure on the private sector

2. Netherlands International: Even if inflation in the euro area slows down, the euro is expected to stabilize.

The euro is expected to remain near its current level against the dollar, EUR/USD, even as the euro continues to be affected by a slowdown in inflation in the euro zone, ING said. Median consumer inflation expectations for the next 12 months fell to 4.1 percent in April from 5.0 percent in March, according to a survey published by the European Central Bank on Tuesday. While the slowdown in inflation should justify a more cautious monetary policy by the ECB, there were no major changes in the ECB's communication approach ahead of the June 15 meeting, ING analyst Francesco Pesole said in a note. Yesterday, European Central Bank President Christine Lagarde reiterated calls for further policy tightening, and her hawkish tone could be a key factor in keeping markets pricing in the July meeting (rate hike) by 40-45 basis points

Goldman Sachs forecasts that the Reserve Bank of Australia will raise interest rates in the next three months, peaking at 4.85%.

Andrew Boak, chief economist for Australia and New Zealand at Goldman Sachs, said Wednesday's speech by Philip Lowe, president of the Reserve Bank of Australia, was a "turn of the eagle". "Combined with today's data showing an unexpected acceleration in unit labour costs (7.9 per cent year-on-year), Goldman now expects the RBA to raise rates by 25 basis points each in July, August and September (previously forecast of 25 basis points in July), with rates peaking at 4.85 per cent (previously forecast of 4.35 per cent)."

4. Goldman Sachs: Expect the dollar to decline less;

Kamakshya Trivedi, global head of FX at Goldman Sachs, said: "At current pricing, 'holding on to a hike' in a high-risk context will pose some challenges to the dollar, but we suspect the downside will continue to be small and limited by US macro performance."