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The central bank's hawkish turn deviates from the dollar's sharp decline. What is the market trading?

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Hello everyone, today XM Forex will bring you "[XM Forex Platform]: The central bank's hawkish turn deviates from the sharp fall of the US dollar, what is the market trading?". Hope this helps you! The original content is as follows:

Asian Market Trends

On Thursday, as global central banks braced for an inflationary counterattack, the U.S. dollar index fell after consolidating above the 100 mark. As of now, the U.S. dollar is quoted at 99.42.

Overview of Foreign Exchange Market Fundamentals

As of this morning, the interest rate futures market is pricing in the Federal Reserve’s interest rate cut of only 5.5 basis points this year, and interest rate hike bets have begun to appear.

Trump: The United States and Qatar had no knowledge of Israel’s attack on Iran’s South Pars gas field. Israel will not attack the gas field again. If Iran decides to (continue) to attack Qatar, it will blow up the gas field. Netanyahu also said that Israel will suspend attacks on Iran's main gas fields.

Spokesperson of the Joint www.xmtraders.command of the Iranian Armed Forces: The retaliatory actions against the attacks on Iran’s energy infrastructure have not yet ended.

Bessent: Sanctions on Iranian offshore oil may be lifted in the next few days, or oil war reserves may be released again. It will not attack Iranian energy facilities and will use Iranian oil to suppress prices.

US Energy Secretary: The United States has no plans to impose restrictions on crude oil exports.

Iran plans to impose tolls on the Strait of Hormuz. France, the United Kingdom, Germany, Italy, the Netherlands and Japan announced in a joint statement that they are prepared to take measures to ensure security in the Strait of Hormuz.

Qatar’s LNG facility was attacked, causing a 17% loss in annual export volume. ·A U.S. F-35 fighter jet made an emergency landing after being hit by Iranian fire.

Senior U.S. officials admit that the U.S. and Israel have different war goals. ·The US Secretary of Defense confirmed that he has requested the White House to approve a US$200 billion funding application; in addition, the US has approved US$16.5 billion in arms sales to supplement losses to three Middle Eastern countries.

Russia and Ukraine both called for the resumption of the tripartite talks between Russia, the United States and Ukraine that were suspended due to the situation in the Middle East. Ukraine and the United States will hold talks first on the 21st.

Russian Ministry of Energy: A fuel export ban may be implemented preventively.

For the first time in four and a half years, there was no dissenting vote. The Bank of England unanimously adopted the decision to keep interest rates unchanged and opened the channel for "possible interest rate increases." In a follow-up interview, Bank of England Governor Bailey urgently cooled expectations for an interest rate hike.

As expected, the European Central Bank kept its three major interest rates unchanged and raised its inflation expectations.

The Bank of Japan kept interest rates unchanged at 0.75% for the second consecutive meeting. The statement mentioned concern about the impact of rising oil prices.

U.S. regulators plan to relax capital requirements for major banks, which will reduce capital adequacy ratios by 4.8%, potentially releasing billions of dollars.

Summary of institutional views

Danske Bank: The probability of the Federal Reserve cutting interest rates still exists, but inflation concerns will significantly extend the waiting time

We believe that the key contents of this Federal Reserve meeting are in line with expectations. Policy makers kept interest rates unchanged and clearly pointed out in the statement the uncertainty caused by recent events in the Middle East. The median of the dot plot continues to indicate that there will be one interest rate cut this year. Powell's stance on inflation is hawkish, but he has not actively pushed for a www.xmtraders.completely neutral description of the policy outlook, which means that the possibility of a rate cut may be reduced, but it is still higher than the possibility of a rate hike.

Revisions to the summary of economic forecasts were broadly in line with expectations except for the growth forecast. Throughout the forecast period, including the long-term estimate, real GDP growth has been revised upwards by 10 to 30 basis points. Powell noted that this likely reflects continued strength in productivity growth, which is a key reason why unemployment forecasts remain largely unchanged. Inflation forecasts for the next two years were revised upward slightly. It is worth noting that although policy rate expectations have narrowed, the median rate forecast remains unchanged from the December meeting.

Powell unexpectedly revealed news about his future. He pledged to remain on the Fed's board of governors until the U.S. Department of Justice investigation is concluded. While he made clear he will remain as interim chairman until his successor is confirmed, Powell has not yet decided whether to remain on the board after the Justice Department investigation concludes.

Overall, the message conveyed today is consistent with our baseline expectation, that is, Powell made his last rate cut in December last year, and we expect that if there is another rate cut this year, it will only be possible in September. In fact, the data from the Summary of Economic Forecasts are very close to our own expectations. That said, we think continued concerns about inflation may prompt the Fed to maintain a wait-and-see approach for longer as long as the labor market remains generally stable.

TS Lombard: Is the dollar’s good rise not a return to its safe-haven properties? The logic behind it is very counter-intuitive...

SinceSince the outbreak of the Iran war, as the U.S. dollar has strengthened against almost all currencies, some market www.xmtraders.commentators and investors have eagerly claimed that the U.S. dollar has made a "strong www.xmtraders.comeback" as a safe-haven asset. This narrative logic is based on a variant of "American exceptionalism" - that is, "the general among the shortest": Although the global situation is turbulent, the United States has the strongest military force in the world, is geographically far away from the Middle East, and is less affected by the economic impact of war than Asia and Europe. The violent sell-off of assets in other parts of the world has added fuel to this view.

Admittedly, if the market begins to price in a protracted conflict and a longer-term closure of the Strait of Hormuz, the current situation may be further strengthened, and then the dollar rebound will gain greater momentum, while most other assets will be sold off. However, we fundamentally disagree with the characterization of the U.S. dollar as a “safe-haven asset” or its ability to sustainably reverse its structural downward trend, especially if our cautiously optimistic outlook on the geopolitical timeline is correct.

Those advocating for the dollar to regain its safe-haven status must explain: Why are U.S. Treasuries selling off as the dollar strengthens? In fact, U.S. stocks are also falling, and although gold surged immediately at the beginning of the war, it later gave up all its gains and has stagnated to this day. This is obviously not the standard safe-haven capital flow logic.

In contrast, energy-driven terms-of-trade shocks, with their classic stagflationary pressures on both stock and bond markets, better explain recent dollar and asset price movements. The support for the U.S. dollar is mainly due to three factors that have nothing to do with safe-haven flows: 1) The global energy market is priced in U.S. dollars. As oil and gas prices soar, importers' demand for U.S. dollars increases, leading to a corresponding depreciation of their local currencies; 2) Rising global energy prices mean increased inflationary pressure, and the market's expectations for an interest rate cut by the Federal Reserve have been reduced, thus supporting the U.S. dollar. (Even for the United States, this may be one of multiple shocks. If energy prices remain high, we are not optimistic about the growth prospects); 3) At the same time, other central banks (such as the European Central Bank) have turned hawkish in response to negative supply shocks, exacerbating the downside risks to their domestic economic growth and putting pressure on their currencies.

Mitsubishi UFJ: Once the U.S. and Japan break above 160, the risk of the Ministry of Finance launching live-fire intervention will rise sharply

Lee Hardman, senior foreign exchange analyst at Mitsubishi UFJ Bank, pointed out that supported by the latest policy guidance from the Bank of Japan and the official’s continued escalation of exchange rate warnings, the yen performed relatively solidly against the U.S. dollar overnight. Although the weakening of the yen and high oil prices are working together to push up inflation expectations, the analysis reminds that the current cautious stance of the Bank of Japan alone may still be difficult to fundamentally reverse the overall downward trend of the yen.

Under the intensive "verbal intervention" of Japanese policymakers, USD/JPY failed to break through the key psychological mark of 160.00 in one fell swoop. The Finance Minister reiterated that the authorities are ready to "take all necessary measures at any time" to deal with exchange rate fluctuations, and emphasized that there is currently an "extremely strong sense of urgency" about currency market trends. The analyst believes that these tough statements indicate thatOnce the exchange rate returns above 160.00, the risk of the Ministry of Finance launching live-fire intervention will rise sharply.

In this guidance, the Bank of Japan left suspense for raising interest rates as early as April. Although no clear action instructions have been issued yet, President Kazuo Ueda has made it clear that the policy will adopt a "meeting-by-meeting discretionary decision" strategy. Given that the next interest rate meeting is scheduled for April 28, in the current turbulent environment, the next month is still full of variables. Therefore, the Bank of Japan's refusal to make a "hard www.xmtraders.commitment" today is prudent and logical.

JeremyBoulto: The obsession with shorting the U.S. dollar, analyzing the fragile logic behind the huge euro position

The current market gaming mentality has gone to extremes. After the Australian dollar experienced a long-term rise, speculators changed their previous bearish stance and went long at high levels; funds that had been on the sidelines before the war also poured into Bitcoin crazily after the smoke rose. This behavior of chasing risky assets at the peak of uncertainty reflects the market's overconfidence in the "normalization of risk."

Although the huge long positions in the euro have shrunk, the overall size is still large, and traders are still keen to short the US dollar as the global reserve currency. At the extreme end of the gambling spectrum, traders did not reduce their positions amid the chaos, but instead stubbornly held large amounts of high-risk currencies that supported carry trades. Traditionally, when stocks fall, risk aversion heats up and volatility climbs, carry trades are often the first to collapse. The increase in volatility means that losses from exchange rate fluctuations are likely to overwhelm interest rate gains. However, traders seemed to turn a blind eye to this and continued to dance on the edge of the knife under the temptation of interest rate differentials.

The foundation of all these gambles lies in a strong equity market. In the face of growing adversity, the stock market has remained unusually robust. What we must be vigilant about is that due to the extremely successful early investment, investors have massive floating profits in their hands. Once the market begins profit-taking mode, the stock market's malaise will leave traders holding high-risk currency positions without the last reason to support, and large-scale deleveraging and stampedes will be inevitable.

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market analysis

The central bank's hawkish turn deviates from the dollar's sharp decline. What is the market trading?

Asian Market Trends

Summary of institutional views

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