Forex trading reminder: risk aversion continues to support the dollar, Russia's situation affects the fate of the ruble

The dollar index edged down 0.09 per cent on Monday to 102.77, little changed on the back of safe haven demand amid lingering fears of a global slowdown amid aggressive tightening by central banks around the world. German business sentiment deteriorated for a second straight month in June, according to a survey released on Monday, suggesting Europe's largest economy is struggling to emerge from recession.

On June 27, Beijing time, the Asian market morning, the US dollar index fluctuated narrowly, and is currently trading around 102.75. The US dollar index fell slightly by 0.09% on Monday to 102.77, supported by safe-haven demand, little change, and amid the active tightening actions of many central banks around the world, fears of a global economic slowdown linger.

According to CME "Fed Watch": the probability of the Federal Reserve maintaining interest rates unchanged at 5.00% -5.25% in July is 24.4%, and the probability of raising interest rates by 25 basis points to 5.25% -5.50% is 75.6%; the probability of maintaining interest rates unchanged in September is 20.9%, the probability of a cumulative increase of 25 basis points is 68.5%, and the probability of a cumulative increase of 50 basis points is 10.6%.

The Russian ruble fell 0.90% to 84.40 against the dollar on Monday, having earlier hit its lowest level since March 2022.

Yevgeny Prigozhin, the leader of the Wagner mercenary group, said he never intended to overthrow the government. Mr. Prigozhin was last seen on Saturday night, and his defection over the weekend appeared to pose a major threat to President Vladimir Putin's 23-year rule. Mr. Prigozhin did not mention his position or the agreement to abandon the mutiny.

Edward Moya, senior market analyst at OANDA in New York, said: "We are seeing a rapid escalation as well as an equally rapid de-escalation, which suggests this is a serious threat to get Putin to agree to deal terms with Prigozhin. Until there is a clearer picture of this, it looks like the focus may shift back to the slowdown in global growth we are seeing."

The dollar weakened against the yen on Monday, closing 0.15 per cent lower at 143.50 after Makoto Kanda, finance minister, said Japan did not rule out any options for dealing appropriately with excessive currency volatility.

The yen has been under pressure, the Bank of Japan has maintained its loose monetary policy, and central banks around the world have begun to raise interest rates rapidly in response to stubbornly high inflation. The market now believes that the yen needs a long-term solution to turn its fortunes around. Recent so-called calls from Bank of Japan officials will not change its direction.

The euro closed 0.10 percent higher at 1.0905 against the dollar on Monday, as the weak economic outlook for the euro zone continued to limit the euro's gains.

Business confidence in Germany deteriorated for a second straight month in June, according to a survey released on Monday, indicating that Europe's largest economy is struggling to emerge from recession.

On June 26, the European Central Bank's annual economic forum opened in Sintra, Portugal. At the forum, the IMF sent a strong signal on the progress of inflation, asking the central banks of the European Union to actively take measures to deal with high inflation, even if it may affect economic development.

On Monday, the pound closed down 0.05% against the dollar at 1.2709, and expectations of interest rate hikes from the Bank of England helped limit the pound's decline.

Institutional survey: The Bank of England will raise interest rates by 25 basis points to 5.25% on August 3 and to 5.50% on September 21, with the Bank of England rate reaching 5.50% in the third quarter (5.00% in the June 14 survey).

Tuesday's key data and events

Institutional Perspectives Summary

1. Barclays: Month-end rebalancing models suggest moderate selling pressure on the dollar.

Jayati Bharadwaj, strategist at Barclays, said in a note that the passive month-end rebalancing model showed moderate selling pressure on the dollar against all G10 currencies except the yen, while for the yen, the dollar sell signal was very strong. With developed world central banks in the final stages of a rate hike cycle, equities ignored an expected rise in policy rates around the world and took comfort in a decline in economic tail risks

2. Mitsubishi UFJ: The dollar weakened slightly, but concerns about the economy are expected to limit its decline.

"Weak European PMI data on Friday reinforced expectations that global growth will remain fragile, which in turn could help provide sustained support for the dollar in the near term," said Derek Halpenny, analyst at MUFJ, in a note. Events in Russia over the weekend have so far not had much of an impact on markets, but could also strengthen the dollar if it leads to increased uncertainty, he added

3. Societe Generale: The euro may fluctuate in a narrow range for a long time;

Socie ́ te ́ Ge ́ ne ́ rale said Friday's PMI data had taken almost all confidence out of the eurozone and an improvement in the economic outlook was urgently needed. The bank's economic team has cut its forecast for eurozone growth this year to 0.9 per cent, but this is still above consensus. While the team played down the significance of the PMI data, for now the euro/dollar continues to be closely tied to short-term interest rate expectations, and the PMI data undoubtedly had an impact on these expectations. The euro/dollar is likely to be stuck in a narrow range for a longer period of time, and it is recommended to sell the euro against the Canadian dollar rather than sell the euro against the dollar

4. United Overseas Bank: The Australian dollar has room for further decline against the US dollar.

UOB market strategist Quek Ser Leang said in a note that looking at the technical charts, there may be room for further declines in AUD/USD. The strategist said that after climbing to 0.6900 earlier this month, the pair has fallen sharply, falling below an important support level last Friday. While this sharp and rapid decline seems to be getting ahead of itself, there is still room for further declines in AUD/USD towards the support level on the rising trend line connecting the October 2022 and May 2023 lows, which is currently around 0.6500.