Australian exchange foreign exchange trading reminder: the Federal Reserve may further raise interest rates, the dollar is expected to maintain its rise in the short and medium term, and "Mr. Yen" predicts that the yen will rise sharply

The dollar index rose slightly in early Asian trading on August 8, Beijing time, and is currently trading around 102.18. The dollar rose against major currencies on Monday, mainly due to Federal Reserve policymakers saying that further interest rate hikes are possible given persistently high inflation and the still tight labor market.Bowman, the governor of the Federal Reserve, said on Monday that further interest rate hikes may be needed to drive inflation down to the central bank's 2 per cent target. In remarks prepared for the "Fed Listens" event in Atlanta, Bowman said she supported the latest rate hike decision last month because inflation remained too high while job growth and other signs of activity suggested the economy continued to expand at a "moderate pace".

In an interview with The New York Times on Monday, Mr. Williams, the president of the New York Fed, said the Fed needed to maintain a restrictive stance for some time, adding that maintaining it would depend on fundamentals "driving supply and demand in the economy and inflation".

The dollar index hit a one-week low on Friday after a weaker-than-expected US non-farm payrolls report, closing 0.08 per cent higher at 102.08.Investors are also starting to look at upcoming US inflation data, which on Thursday is expected to show core prices rose 4.7 per cent year-on-year in July.

Jeff Klingelhofer, portfolio manager and co-head of investments at Thornburg Investment Management, said:He believes the dollar will continue to rise in the short to medium termKlingelhofer said: "I would expect the Fed to maintain a longer period of high interest rates, which should support the dollar because of interest rate differentials. So a longer period of high interest rates in the US should support the dollar. I also think that if interest rates remain high, then when consumer conditions deteriorate, the recession will inevitably deepen. Then you get safe haven inflows, which will support the dollar a lot."

The Federal Reserve announced late last month that it would raise its target range for benchmark interest rates by 25 basis points to 5.25% -5.50%. Investors widely believe that this will be the last rate hike in the Fed's operation that starts in March 2022.

The euro closed 0.07 per cent lower at 1.1002 against the dollar on Monday as the euro continued to come under pressure as the eurozone economy remained unsatisfactory.

Data on Monday showed that German industrial production fell more sharply than forecast in June, falling 1.5% from the previous month.

A study published by foreign media on August 7 showed that the European Central Bank's aggressive interest rate hike could have a negative impact on the euro zone economy of nearly 4%. The analysis said that the delayed effect of the interest rate hike will reduce the euro zone economy by 3.8% in 2024. So far, the euro zone economy has been somewhat resilient.

The eurozone economy could contract by as much as 5 per cent in 2024, with governments likely to opt out of support measures introduced more than a year ago in response to soaring energy prices. The ECB has raised its key interest rate by a total of 425 basis points since July to reduce high inflation well above its 2 per cent medium-term target.

Sterling closed up 0.27% at 1.2783 against the dollar on Monday. The Bank of England raised interest rates by 25 basis points on Thursday to a 15-year high of 5.25%.

Barclays fixed income strategist Moyeen Islam said in a note,The high level of inflation in the UK and the risk of this persisting in the medium term have reduced the likelihood of an early rate cut by the Bank of EnglandHistorically, he said, the interval between the last rate rise and the first rate cut was about six monthsWith policy now described as restrictive, the Bank of England's monetary policy committee is now less focused on the end point level of interest rates and more on "keeping it sufficiently restrictive for a sufficiently long time", Mr. Islam said.

The dollar rebounded against the yen on Monday, closing up 0.50% at 142.47.

Japanese authorities are unlikely to intervene in currency markets to prop up the yen because it has already gained some support and is set to rise sharply as US interest rates peak, according to Mr. Yen, a former finance minister.

Mr. Kamihara, who earned the nickname "Mr. Yen" for devising currency interventions during his tenure as finance minister in the 1990s, remains a closely watched figure for his unique insights into the yen.

Tuesday's key data and eventsInstitutional Perspectives Summary

1. Mitsubishi UFJ: It is expected that the dollar will gain only a limited amount before the release of CPI data.

The dollar rebounded from Friday's decline after lower-than-expected growth in non-farm payrolls, but gains are expected to be limited as investors focus on key US inflation data for July due on Thursday, said Lee Hardman, currency analyst at Mitsubishi UFJ, in a note. "Last month's price action highlights the vulnerability of the dollar to another sell-off if the US CPI report is weak on Thursday," he said. If the data again show a sharp slowdown in core inflation, it will strengthen expectations that the Federal Reserve may stop raising interest rates;

2. Bank of America: The pound will benefit from a stable interest rate policy in the future.

Market analyst James Skinner said the Bank of England's success in dampening market participants' expectations of a rate cut is good for the pound in the medium to long term. Bank of America strategist Michalis Rousakis said the pound could benefit from a stable interest rate policy in the future. Bank of America expects the Bank of England to raise interest rates by another 25 basis points to 5.5% in September;

3. Deutsche Bank: Core inflation and service inflation in the euro area remain significantly high.

A key market gauge of long-term inflation expectations in the eurozone hit its highest level in more than a decade on Monday, as investors expect future consumer price increases to be much higher than the pre-COVID-19 pandemic average. The eurozone's five-year, five-year forward break-even inflation rate, which reflects long-term inflation expectations, hit 2.6691 percent, the highest in at least a decade, according to Refinitiv data. The recent rise in oil prices has underpinned gains in inflation-linked forward contracts since mid-July. Oil prices rose for six straight weeks last week but fell back on Monday as top producers Saudi Arabia and Russia pledged to extend supply cuts until the end of September. Michael Leister, head of interest rate strategy at Deutsche Bank, said: "Expectations of persistently high inflation, supported by second-round effects, appear to be the main driver, with core and services inflation remaining significantly elevated."