Reverse Currency War! The incident happened in the early hours of last Thursday, Hong Kong time. Although the US Federal Reserve raised interest rates by 0.75% as expected, the “hawkish” dot plot indicates that it will increase by 1.25% this year and 0.25% next year. On the same day, many central banks discussed interest rates. The United Kingdom, Norway, Indonesia, and the Philippines raised interest rates by 0.5%; South Africa and Switzerland raised interest rates by 0.75%. Switzerland ended the 8-year negative interest rate policy, which also marked the end of the 10-year negative interest rate era in Europe; Japan maintained interest rates at no rate. become the last country with negative interest rates. The aggressive interest rate hike by the United States caused the US exchange rate to rise sharply, non-US currencies fell sharply, the rate hike war triggered a currency war, and many countries used their reserves to intervene in the exchange rate, and even Japan finally took action!
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Last Thursday, the US dollar index hit a high of 111.81, while the yen fell below the “Kuroda Line of Defense” 125 to the US dollar in March, 130 in April, 135 in June, 140 in September, and hit a 24-year low on September 7. After 144.99, it fell below 145 when the Bank of Japan Governor Haruhiko Kuroda spoke after discussing interest rates last Thursday, reaching a low of 145.9. Less than an hour later, the Japanese Ministry of Finance finally couldn’t help but intervene in the exchange rate. First, from 4:03 to 4:44 in the afternoon, the yen rebounded from 145.7347 to 140.6995, and then from 7:32 to 7:59 at night, the yen rose from 145.7347 to 140.6995. 142.787 rebounded to 141.26. Kuroda did not think the government would interfere, but the foreign exchange market is under the jurisdiction of the Ministry of Finance rather than the central bank.
The Plaza Accord is hard to repeat
Japan intervened in the exchange rate for the first time in 24 years, and it was September 22, which reminded the market that on September 22, 37 years ago, the United States, Japan, Britain, France and Germany signed the “Plaza Agreement” to jointly intervene in the foreign exchange market. After Japan signed the agreement, the yen appreciated sharply, the bubble economy burst in the 1990s, and it fell into a “lost 30 years”. Will there be a new Plaza Accord today? It is estimated not. Although the strength of the US dollar is similar to that of the year, the coordination among countries is not as rare as the US, and the strength of the US dollar is a by-product of the Fed’s tightening monetary policy, and a weakening of the US dollar is inconsistent with its policy. This trip to Japan can only be fought alone, unless the central bank “unloads the pigeon”, the yen’s weakness will be hard to change.
When it comes to policy contradictions, I have to mention the UK. On Friday, the UK announced its largest 50-year tax cut of 45 billion pounds to stimulate the economy, with the tax cut to be offset by debt issuance. The market believes that the new prime minister is making a big gamble with the Chancellor of the Exchequer, fearing that the massive bond issuance will weaken the outside world’s confidence in the British economy and trigger a currency crisis; moreover, the stimulus measures are inconsistent with the central bank’s tightening monetary policy of raising interest rates to curb inflation. The market voted with its feet, and the pound fell 3.8% against the dollar to a low of 1.084; the UK 10-year bond yield surged to 3.827%, higher than the US 10-year bond yield of 3.688%. The head of foreign exchange at Deutsche Bank bluntly said that the market has sent a strong signal that it is unwilling to provide funds for the UK’s additional fiscal deficit.
The dollar is about to die
Last Friday, the US dollar index broke through the 112 and 113 levels in a row, reaching a high of 113.23. Once it was successful, the euro was as low as 0.9668 against the US dollar; the pound fell below the 1.1 mark against the US dollar, and the Hong Kong dollar pegged to the US dollar fell to 8.5; after the intervention of the Japanese yen , 143 per dollar and 5.47 per 100 yen per Hong Kong dollar. Outside the foreign exchange market, stocks, bonds and commodities were also murderous. The three major U.S. stock indexes fell 1.6% to 1.8%; the European stock Stoxx 600 index fell 2.3%, down 20% from its high in January, and fell into a technical bear market; The 2-year interest rate exceeded 4.2%, and the 10-year period hovered at 3.7%; spot gold fell 1.7%; oil futures fell 5%. The market is haunted by bullets, be careful!
The market is like a battlefield and a casino. Looking back at the foreign exchange market, big players seem to be betting that the UK will not hesitate to allow the pound to depreciate in order to attract external investors. The funds pushed the euro down to below 1 against the US dollar in August, and pushed the yen to below 1 in September. After 145 to 1 dollar, bet on GBP 1 against the dollar. Bloomberg reported on Friday that according to options pricing models, there is a 26% chance that the pound will hit parity against the dollar in the next six months, up from 14% the previous day. The US dollar rises and the British pound falls. Among Hong Kong stocks, those with business and assets in the UK will be affected by exchange rate factors, including CKH Holdings, HSBC (005), Standard Chartered (2888), etc. Among them, the HSBC ADR was converted to HK$44.21 on Friday, 3.3% lower than that of Hong Kong, and it is not suitable for flying knives.
citrus cutter
Previously worked as a financial reporter and editor, and wrote a financial column in a Hong Kong newspaper for more than ten years
This column is published every Monday
Further reading:Is it best to exchange pounds for points first?Compare the latest exchange rates at bank changers