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Financial Bulletin

Bet on weaker inflation! Dollar bears surged

Release Time:2024-05-15

Before the US CPI was released in April, foreign exchange traders generally expected the dollar to fall.

The data in the options market shows that traders have been accumulating bearish bets on the US dollar, and the one-week US dollar risk reversal index fell below parity. This is the first time in two months, which also means that the market expects weak CPI data to put pressure on the US dollar.

On Tuesday, Federal Reserve Chairman Powell reiterated that raising interest rates is unlikely to be the next move of the central bank, which made traders re-focus on the prospect of monetary easing this year, and the dollar faced downward pressure. Kyle Chapman, a foreign exchange market analyst at Balinger, pointed out that the weak data may ignite the hope that the Fed will cut interest rates in the summer, thus weakening the yield advantage of the US dollar.

Economists predict that the US CPI will slow down to 3.4% in April from 3.5% in the previous month. If the inflation data meets or is lower than expected, it will consolidate the expectation that the Fed will cut interest rates twice this year. The Bloomberg dollar spot index fell on Tuesday because Powell called for patience with inflation.

Data from the Commodity Futures Trading Commission for the week ending May 7 also showed that traders were withdrawing a large number of bets on the dollar.

Historical data show that the dollar usually falls after inflation data cools down. In the past year, inflation data was lower than expected for three times, and the dollar fell significantly at the end of each trading week. In contrast, the market is particularly optimistic about the prospects of the euro. The relative premium of common currency call options, that is, the bet that the euro will appreciate next week, has risen to the highest level since February.

Howard Du and Vadim Iaralov, strategists at Bank of America, said that European investors had completely closed their long positions in dollars in the past month. Therefore, before the US inflation data was released, the company was bullish on the euro against the US dollar.

Risk warning and exemption clause

The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.

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