Global foreign exchange shock
This Monday may be an unforgettable day for foreign exchange investors. Global non-US currencies fell sharply across the board.
First of all, the yen fell very much, and the number of points of decline once reached more than 16000. According to the Kyodo news agency of Japan, the exchange rate of the yen against the US dollar fell to 137-137.50 yen the US dollar on the 11th intraday. The report pointed out that due to the expected expansion of the interest rate gap between Japan and the United States, the momentum of buying dollars and selling the yen intensified, and the yen depreciated to a new low of about 24 years.
Secondly, there was a trend decline in the euro. On Monday evening, Beijing time, the euro fell sharply against the US dollar. During the North American trading session, the euro fell 1.5% against the US dollar to 1.0032, just a line away from parity. The last time the euro hit this low against the dollar was in 2002. Ding Muqiao, a market researcher in the financial market department of China Merchants Bank, said that the surge in risk aversion caused by the economic recession also puts downward pressure on the euro exchange rate in the future. In the short term, the euro will face the risk of falling below parity against the dollar.
Third, although China's financial data in June were much higher than expected, the offshore RMB still failed to show a strong performance. It was reported at 6.7259 yuan against the US dollar at 04:59 Beijing time on the 12th, down 397 points from the end of last Friday in New York. On July 12, the onshore RMB exchange rate against the US dollar fell sharply by more than 320 points to 6.7398. At the same time, the offshore RMB fell sharply against the US dollar, approaching the 6.74 level. As of 9:34, the onshore and offshore RMB was reported at 6.7323 and 6.7384 against the US dollar respectively.
Finally, the key among the keys, the US dollar index rose by more than 1% during the day, breaking through the 108 level and hitting a new 20-year high.
Major non-U.S. currencies showed a large decline against the US dollar, led by the Australian dollar in the G-10 currency, and the Norwegian Krona and New Zealand dollar also led the decline.
Previously, the Wall Street Journal wrote in an article entitled the strong dollar wins the inflation battle in the new turning point of the currency war that the reverse currency war is starting, and the United States is winning. Again, just as the United States won the war of dollar depreciation after the 2008 financial crisis, it is now winning the war of dollar appreciation.
According to previous standards, the performance of the US dollar index may cause global liquidity problems. As the interest rate hike in the United States has just begun and the table contraction has just begun, the liquidity in the market may still exist. However, with the passage of time, if the economy cannot recover effectively if the war between Russia and Ukraine continues, and if inflation cannot be controlled in time, a large number of hedge funds may flow to dollar assets, and then global liquidity problems may occur.
What causes the dollar to rise sharply and the non-U.S. currencies to fall across the board
First, in Japan's upper house election last Sunday, the majority of the ruling coalition was consolidated and further expanded. This means that Japanese people may still tend to support Abenomics and ultra-loose monetary policy. This expectation triggered an accelerated weakening of the yen.
Secondly, according to a Bloomberg survey, the possibility of economic contraction in the eurozone has increased from 30% in the last survey and 20% before the outbreak of the Russian-Ukrainian war to 45%. Germany deserves special mention because it is very vulnerable to Russia's energy supply. If the country's output shrinks rapidly, as the largest economy in the eurozone, it will inevitably hit the euro.
Third, it may be due to the weakness of the global economy as a whole. It is not only the foreign exchange market that has experienced severe turbulence but also the performance of the commodity market is relatively poor. The world's major non-ferrous metals almost fell across the board. Whether it is foreign exchange, bulk commodities, or the stock market, the root cause of instability is the imbalance of economic development. Affected by the war between Russia and Ukraine, the economic outlook of the eurozone has obviously been bearish. Although the employment data in the United States is still positive, some data have raised the alarm of economic weakness due to high inflation. However, in any case, the situation is much better than that of Europe and Japan. Therefore, coupled with the Federal Reserve raising interest rates and shrinking the table, the US dollar index is naturally bullish.
Russia's war on Europe?
On Monday, Beixi natural gas pipeline company said that from 7:00 Moscow time on July 11, two lines of the Beixi-1 natural gas pipeline operated by the company would be temporarily closed for routine maintenance, and the natural gas supply was expected to be interrupted for 10 days. It is reported that Russia sends natural gas to Europe through these two lines.
It is only this move that has raised concerns in Europe. According to the Guardian on July 10, habit, the German Deputy Chancellor and Minister of the economy and climate protection, said, everything is possible, anything can happen. After the maintenance, Russia may continue to send gas to Germany through the pipeline, or it may send more gas than before, or nothing may happen. To be honest, we need to prepare for the worst and try our best to deal with possible problems.
On the 11th local time, Eni group, an Italian energy company, announced that it had received a notice from Gazprom that it would supply 21million cubic meters of natural gas to Italy that day, a decrease of one-third from the previous daily average of 32million cubic meters. Ignazio Visco, President of the Bank of Italy, warned last week that Italy would face an economic recession if Moscow completely stopped the transportation of natural gas.
The risk of natural gas supply interruption in Europe is the direct trigger for the decline of the euro. Li Liuyang, a foreign exchange expert at the CICC Research Institute, said that if Europe cannot obtain sufficient natural gas reserves, the rise in energy prices may have a devastating impact on the European economy and the balance of payments.
The impact of the conflict between Russia and Ukraine continues, and the European market will continue to encounter energy shocks. In June, the Dutch natural gas futures standard contract soared by nearly 80%, which created a huge negative impact on the European economy, which is heavily dependent on Russian energy imports, and the euro fell under pressure.
Dr. Kissinger, an American political elder, also said in a recent media interview that the first thing Biden should do at present may be to end the conflict between Russia and Ukraine. Almost all observers can see that only by ending this conflict can the global economy usher in a relatively stable development environment. Otherwise, the uncertainty of the war situation and the incompleteness of the industrial chain supply chain will greatly affect investors' expectations.
BlackRock strategists said that the stock and bond markets, which are now in the worst year in at least 30 years, showed no signs of rapid recovery. The stalemate between Russia and Ukraine and the supply bottleneck caused by labor shortage will keep the price rise high. The central bank will tighten policy until economic pain forces them to change course and endure inflation. Because everything is too politicized, it will be difficult for policymakers to solve this problem.
We have ushered in a new world with increased macro volatility, and the risk premiums of bonds and stocks have risen, wrote strategists at BlackRock Investment Research Institute in a mid-year report. For example, the Federal Reserve may stifle the resumption of economic activity until the damage occurs.