[ロンドン ２３日 ロイター] – The strength of the dollar against the backdrop of the strong US economy, persistently high prices, and geopolitical tensions has become a source of concern for authorities in countries such as Japan, China, and Sweden.
The dollar index is at its highest level since November last year, and is expected to record its fourth consecutive monthly rise.
In the market, expectations for a US interest rate cut further declined after the US consumer price index (CPI) in March exceeded expectations. The foreign exchange market has become sensitive to the outlook for interest rate differentials.
“We’ve been tracking investor flows, and dollar buying has increased since the CPI announcement,” said Tim Graf, head of European macro strategy at State Street Global Markets.
Here’s a summary of some of the pressures the dollar’s strength is causing.
(1) Japan and Korea
The dollar/yen pair has risen to nearly 155 yen to the dollar, the highest since 1990, and the Japanese authorities are warning of the possibility of intervention to buy the yen. The yen has fallen 9% this year. This was the biggest decline among the G10 currencies.
The dollar/won pair has risen about 7% in the last month alone. It is at its highest level in a year. Japan, the US and South Korea announced last week that they had agreed to “closely consult” on exchange rate trends.
“These statements show that if the Japanese and South Korean authorities want to curb currency fluctuations, the U.S. will not necessarily object,” said James Lord, head of foreign exchange and emerging markets strategy at Morgan Stanley. .
(2) China and emerging Asian countries
The strong dollar is hurting all of Asia.
The Indian rupee and Vietnamese dong have fallen to record lows. The Indonesian rupiah is at its lowest level in four years, and the central bank has announced intervention.
Market participants are also paying attention to the renminbi. The rate of depreciation of the yuan is much lower than that of other Asian currencies.
A weaker yuan will increase China’s export competitiveness, but it may also lead to capital outflows.
“The offshore yuan is definitely at the top of the list (of Asian currencies under pressure),” said Adarsh Sinha, co-head of Asian rates and currency strategy at Bank of America. “The yuan has historically had little price movement, making it a particularly popular target to short,” he said.
(3) Euro area
The euro is trading at a level slightly above $1.06 per euro, and has not fallen particularly sharply against the dollar. However, recently, financial institutions have been revising downward the expected exchange rate of the euro/dollar.
Prior to the release of the US CPI in March, many believed that the European Central Bank (ECB) and the US Federal Reserve (FRB) would cut interest rates in unison, but the market is currently predicting that the ECB will cut interest rates in June. The euro has fallen to a five-month low on expectations that the Federal Reserve will cut interest rates in September.
Kenneth Blue, head of corporate research, foreign exchange and rates at Société Générale, said: “If the euro continues to weaken below $1.05 and oil prices rise, it will be a source of inflation, and the ECB will be very cautious after its first rate cut. We will have to respond carefully.”
(4) Sweden
Import inflation caused by currency depreciation is a particular problem for countries with small economies.
In Sweden, the inflation rate is falling and there are speculations that interest rates will be cut in May, but central bank deputy governor Jansson expressed caution that a sharp fall in the Swedish krona could cause problems with inflation in the future. It shows.
The krona has fallen about 8% against the dollar this year. Goldman Sachs predicts that the dollar could fall from the current 10.89 kronor to 11.14 kronor in six months.
Ivan Bertaud, currency strategist at UBS, said: “Staying high interest rates in the United States is a problem (for Sweden’s central bank). If financial conditions (in Sweden) start to loosen in the near term, the interest rate differential will widen and be negative for the currency.” Ta.
(5) Switzerland
Not all countries are negatively affected by the strong dollar.
The Swiss franc has fallen 7.5% against the dollar this year. The Swiss central bank’s unexpected interest rate cut in March has also had an impact, but unlike many other countries, the central bank is concerned about currency appreciation in consideration of export companies that are underperforming. .
“Inflation is lower than expected, which suggests that financial conditions are a bit too restrictive, which is why[the central bank]welcomes a weaker franc,” Bertaud said.
UBS expects the dollar/franc pair to rise to 0.952 francs by the end of the year, from the current 0.91 francs.
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