The attitude of some officials of the US Federal Reserve has turned dovish, and the market expects that the attitude of raising interest rates may slow down. In addition to the weakening of the US dollar, the euro is also expected to recover due to the recovery of the euro zone economy. Take a cautious view on the trend of the euro until March next year, when it may drop to $0.96.
UBS said that the market expects that the Federal Reserve is unlikely to raise interest rates by another 75 basis points in December. In addition, the number of people filing for unemployment benefits in the United States reached 240,000 last week, exceeding the previous value and market expectations. The U.S. dollar index (DXY) was at 106 It fluctuated below, with a cumulative decline of about 5% since the beginning of the month.
UBS said that the global economy usually falls short of market expectations at the beginning of the year, and the strong performance of the U.S. dollar may repeat itself in 2023. Therefore, it remains cautious on the trend of the euro before March next year, and may drop to $0.96 by then
UBS believes that one of the possibilities for the end of the euro’s rise is that the U.S. policy rate ends up being higher than the market’s current expectation of 5%, mainly because U.S. inflation fails to fall back quickly to the central bank’s 2% target.
In addition, the global economic recession has also prompted safe-haven funds to flow into the dollar, making it more difficult for the European Central Bank to solve the dilemma of high inflation and weak economic growth. If the economic data deteriorates, the risk sentiment currently supporting the euro may fade quickly.
From a long-term perspective, the euro is more favorable than the U.S. dollar, but the premise is that the euro zone and the global economic outlook improve, and the former’s exports must rebound. Due to the soaring energy import costs, the current account of the euro zone has fallen into a deficit this year, and the disadvantage must be reversed to support the euro. rebound.
Franklin Securities Investment Advisory said that the initial value of S&P Global manufacturing, service industry and comprehensive PMI in the euro zone in November was better than expected, showing that the economic performance of the euro zone was not as weak as the market expected, which in turn supported the trend of the euro.
Franklin Securities Investment Advisory stated that some Fed officials advocated that the pace of interest rate hikes should be slowed down. The market expects the Fed to raise interest rates by 2 yards each in December and February 2023, and raise interest rates by 1 yard in March to the end The 5-5.25% interest rate is still a bit hawkish, but such expectations have not boosted the U.S. dollar again, but it also reflects that the U.S. dollar’s rise may have reached its end as the interest rate hike cycle is drawing to a close. It is expected that the subsequent U.S. dollar will It falls in the 104-119 range.
As for the euro area, although it is still facing high inflationary pressures, and the European Central Bank (ECB) officials have repeatedly reiterated that they still need to continue to raise interest rates, but the recent natural gas from the United States and Norway has gradually made up for the gap caused by Russia’s suspension of natural gas supply, driving European natural gas prices. With a sharp fall, inflation in the euro zone is expected to peak in December or early 2023, and gradually slow down the impact of high inflation on the euro zone economy. Recent economic data and corporate earnings reports in the euro zone also reflect that Europe is still resilient, which will help support Euro, the euro is expected to fall in the 1.01-1.06 range.