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The dollar is getting tired, and emerging market pressure is eased.

November 09, 2018 02:46
Author: Zan Beauty

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The US dollar index dipped in the US local time on November 7, and the US dollar index against the six major currencies fell 0.33% to close at 95.9955.

The weakness of the dollar has sighed in emerging markets, and emerging market stocks have rebounded. Although policy variables have pulled down the dollar in the short-term, many institutions expect that the dollar index will not last long.

  Policy variables pull down the US dollar index

Due to US President Trump’s fiscal stimulus plan and strong economic data forcing the Fed to raise interest rates, the US dollar index has continued to rise since April 17 this year, becoming a global foreign exchange market winner, but the recent US dollar index gains or due to policy variables And turn around.

Jameel Ahmad, global head of currency strategy and market research at FXTM, said that since the beginning of this week, the dollar has gradually declined slightly against major currencies, which is related to market expectations.

Dutch cooperationbankPiotr Matys, a foreign exchange strategist based in London, said that more and more institutions and investors believe that for the Trump administration, there will be very limited space for re-initiating measures to stimulate economic growth, which will push down the dollar.

However, in the medium and long term, the dollar's decline may not last long.Royal Bank of ScotlandMansur Mohi-Uddin, head of currency strategy at NatWest Markets, a subsidiary, said that whether the dollar has reached its peak, the primary factor is the end of the Fed rate hike cycle. Given that the market expects the Fed to raise interest rates three or four times in 2019, the US dollar index has not yet reached its peak before the Fed has completed its rate hike cycle. SeekingAlphaAnalystSankalp Soni also said that the current short dollar is too risky, currentlyUS economic dataStill strong, and support the Fed to raise interest rates, which will further push the dollar.

  Emerging markets temporarily "take a profit"

After the start of this round of interest rate hikes, the US dollar index rose sharply, and emerging market countries with higher external financing demand were the first to suffer. The currencies of emerging market countries such as Argentina, Turkey, Brazil, Mexico, and South Africa all experienced different levels of depreciation and capital outflows under the pressure of appreciation of the US dollar. The stock market is also not optimistic. The stock markets of Southeast Asia such as Thailand, Malaysia, Indonesia and Vietnam, Hungary in Eastern Europe, the Czech Republic and Brazil in South America have continued to fall, which is not unrelated to the outflow of funds caused by the strengthening of the US dollar. The recent weakness in the US dollar is helping the emerging markets to rebound and the stock market rebound.

The currencies of most emerging market countries rebounded this week. On November 7, the US dollar fell 1.31% against the South African Rand, the US dollar fell 1.34% against the Indonesian rupiah, and the US dollar fell 0.79% against the Brazilian real.

In the stock market,Morgan StanleyThe MSCI Emerging Markets Index rose 0.58%. On November 8, Indonesia's Jakarta KLCI rose 0.62%, and the Korea Composite Index rose 0.67%. India's Mumbai 30 index rose 0.7% on November 7.

In this regard, the Marketwatch column pointed out that the depreciation of the US dollar can alleviate the debt burden of emerging market economies. Looking forward to 2019, although geopolitical issues may cause pressure like this year, there is reason to be optimistic about emerging market fundamentals. Morgan Stanley also said earlier that the valuation of emerging market currencies is “cheap” and supported by the possible decline of the US dollar, favoring the Russian ruble and the Argentine peso. Due to the weak dollar, emerging market currencies are expected to perform better in 2019.

Right now, the market is turning to the Fed’s upcoming November announcement.interest rateResolutions and policy statements. The Fed will maintaininterest rateThe same, but the market will pay close attention to the wording in the policy statement, while it is widely expected that Fed Chairman Powell will raise interest rates in December, which will be the fourth rate hike this year, because the US economic fundamentals remain strong. However, considering that the expectation of a rate hike in December has been basically digested by the market, the market expects that the interest rate hike will support the US dollar and its impact on emerging markets is limited.

(Article source: China Securities Journal)

                (Editor: DF407)

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