U.S. dollar climbs to 10-year high ahead of rate meeting results, raising fears of devaluation of Asian currencies

The results of the U.S. Federal Reserve's interest rate meeting will be announced in the early hours of Thursday (5th).

Prior to this, the US dollar index took the lead in breaking through, breaking the 103 mark, hitting a high in the past ten years.

The U.S. dollar has traditionally been the world’s main trading and reserve currency. When the U.S. dollar and U.S. interest rates rise, it will have a pull-down effect on other non-U.S. assets, causing the prices of stocks, bonds and other assets to fall.

Among the major currencies in Asia, the yen depreciated the most, with a monthly decline of 6% and another 20-year low.

Renminbi selling pressure has also increased, and some analysts worry that once the yen's decline gets out of control, it will set off a wave of devaluation of Asian currencies.

The Federal Reserve started raising interest rates in March this year, the first move toward normalizing interest rates since the outbreak of the epidemic.

Inflation in the United States exceeded 8%, hitting a new high in more than 40 years, and investors' expectations for the Federal Reserve to raise interest rates have become more aggressive.

According to market interest rate futures quotation data, investors expect half of the rate hike this year to reach 2.75%.

The rate increase estimated by the market far exceeds the official expectations of the Federal Reserve. According to the interest rate dot plot released by the Federal Reserve in March, the Fed members generally believe that the rate hike for the whole year will be 1.75%, which highlights that the current market expectations may be too aggressive. .

Among the major currencies in Asia, the yen depreciated the most, with a monthly decline of 6% and another 20-year low.

(file picture)

Rebecca Patterson, chief investment strategist at Bridgewater, the world's largest hedge fund, believes that if the United States is to curb inflation, interest rates must reach much higher than Fed Chairman Powell's expectations. Expectations will continue to boost yields across all maturities, which is one reason the company is short across the board on U.S. Treasuries of all maturities.

"The question now is whether the Fed's actions will bring inflation to the level that the market expects," Patterson said.

The strength of the dollar and the euro was mixed, and Wen Zhuopei pointed out that the weakness of the euro exacerbated the strength of the dollar.

In the exchange rate composition of the US dollar index, the euro and the yen account for 57% and 12% respectively, and the two together account for nearly 70%.

At present, the euro is approaching a 19-year low, and the yen has hit a new low in more than 20 years. Normally, there is limited room for further declines, but the war situation in Ukraine has become the most difficult factor to predict...

For details, please read the 315th issue of "Hong Kong 01" e-Weekly Newsletter (May 3, 2022) "The

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