Australian exchange foreign exchange trading reminder: the United States and Japan resume the rally and may hit a new high this year, the Bank of England interest rate hike expectations cooled, institutions bearish sterling

The dollar index fell on Wednesday, trading quietly and in range, and finally closed down 0.04% at 102.50. Investment banks such as BNP Paribas predicted that the Bank of England will raise interest rates by just 25 basis points, bearish on the pound. The head of global research at FOREX.com and City Index said the United States and Japan resumed their gains so far this year and could soon hit new highs for the year in 2023, especially if the U.S. CPI report is higher than expected.

In early Asian trading on August 10, Beijing time, the dollar index fluctuated narrowly and is currently trading around 102.51. The dollar index fell on Wednesday, trading quietly and in range, and finally closed down 0.04% at 102.50. Investors awaited Thursday's U.S. consumer price report for signs of the direction of the Federal Reserve's monetary policy.Investors are now focused on Thursday's US inflation data, which is particularly important for markets hungry for clues about the direction of Federal Reserve policy. Wall Street economists expect the core consumer price index (CPI) to rise 4.8% in July from a year earlier, unchanged from the previous month.

Analysts at Macquarie, led by Thierry Wizman, FX and interest rate strategist, wrote: "We remain very confident that US inflation will continue to ease, led by a slowdown in home price inflation, which accounts for 35 per cent of the headline CPI. We expect CPI to be lower than expected (up 4.7 per cent year-on-year), driven by a slowdown in primary and owner-equivalent rental inflation."

Overnight, Fed officials also sent more dovish signals, with Philadelphia Fed Chairperson Mark Harker saying interest rates were high enough and Atlanta Fed President Robert Bostic echoing similar sentiments. But officials were by no means unanimous. Governor Bowman said on Monday that further rate hikes were possible.

The dollar rose for a third straight session against the yen on Wednesday, closing up 0.25% at 143.71.

Matthew Weller, global head of research at FOREX.com and City Index, said: "With the 10-year Treasury yield spread between the US and Japan remaining at around 3.4 per cent... and the prospect of any formal rate hike by the Bank of Japan appears to have been pushed back.The dollar has resumed its year-to-date gains against the yen and could soon hit a new high for the year in 2023, especially if the U.S. CPI report on Thursday is higher than expected。”

The New Zealand dollar traded at a low level against the dollar on Wednesday, closing down 0.25% at 0.60. The Reserve Bank of Australia will hold its next interest rate decision on August 16.

Sharon Zollner, chief economist at ANZ, said the Reserve Bank of New Zealand was expected to leave its official cash rate unchanged at 5.50 per cent next Wednesday and would reiterate its "watch, worry and wait" stance.

Since July, New Zealand's economic data has been mixed, demand has been relatively resilient, but inflation indicators have fallen as planned, an attractive combination, but its sustainability is questionable. Zollner added that ANZ does not expect to raise interest rates again next week, but OCR forecasts may show rates staying high for a little longer.

Sterling closed 0.23 per cent lower at 1.2718 against the dollar on Wednesday, as the Bank of England moved closer to ending its monetary tightening cycle and this year's surprise rally may finally be running out of steam.

While the bank is expected to raise interest rates twice more, analysts and investors at BNP Paribas, Nationwide Westminster Markets and State Street, all of whom are bearish on sterling, expect officials to raise rates only once more.

Sterling has been in a downward trend since hitting its highest level in more than a year in mid-July and extended its decline when the Bank of England raised interest rates by 25 basis points on August 3. The decision, combined with signs of economic instability, prompted traders who once expected the key rate to rise above 6.5% to now think it will hit just 5.75%.

Thursday's key data and eventsInstitutional Perspectives Summary

Mitsubishi UFJ: Japan recorded a trade surplus for the first time in nearly two years, which is expected to support the yen.

Japan's shift to a trade surplus would be a "key" factor supporting the yen over time, according to MUFJ. Earlier this week, Japan reported its first trade surplus since October 2021 and its largest since July 2021. Derek Halpenny, head of European global market research at MUFG, said: "The fading of the negative impact on energy prices is a crucial fundamental shift for the yen." The surge in energy prices last year weighed on the yen and Japan's current account because Japan relies heavily on imports for its energy supply, but the corresponding pressure has disappeared after a sharp drop in natural gas imports, meaning that the scope for further gains in the dollar against the yen may be limited;

2. Societe Generale: Unless the data is favorable, the euro is expected to fall against the dollar next month.

Kit Juckes, FX strategist at Socie ́ te ́ Ge ́ ne ́ rale, said in a note that the euro is likely to fall against the dollar in September as investors cut back on a large number of long positions in the euro. The two-year bond yield spread and expectations for eurozone and US economic growth both suggest that the euro should be in a lower water plain today than it is now. One explanation for this is that there is a large and firm long position in the euro against the dollar, which is likely to continue for some time, keeping the euro stable against the dollar. Come September, however, unless economic data and expectations for Fed and ECB policy are in favour of the euro, we will see the euro long position surrender;

3. Deutsche Bank: Affected by the Bank of England's interest rate expectations, the pound is expected to remain strong against the euro.

You-Na Park-Heger, FX analyst at Deutsche Bank, said the pound should remain strong against the euro in the coming weeks due to persistently high inflation in the UK and market expectations that the Bank of England will raise interest rates again. She said that the current inflation rate in the UK is still high, which should maintain the expectation of the Bank of England raising interest rates, and the pound should benefit from it. At the same time, fears of a recession in the euro zone should weigh on the euro. Deutsche Bank forecasts that the euro will reach 0.8600 against the pound by the end of September, and then the pair will rise again to 0.88 by the end of the year;

4. Barclays: UK inflation helps maintain high interest rates, supporting the pound.

Barclays strategists said the rise in UK inflation was being driven by resilient consumer demand in a strong labour market, which could support the pound by keeping UK interest rates high relative to major countries for longer.