Currently, the "twin deficits" (fiscal deficit and foreign trade deficit) of the United States are dragging down the US dollar, but there is another thing that is also dragging down the US dollar, and that is the Federal Reserve's interest rate hike. Why do you say this? Let’s take a look.

1

Twin "deficits" drag down the dollar

The U.S. "twin deficits" are hurting the dollar: the trade deficit plus the federal budget deficit (often called (twin deficits), further putting pressure on the dollar. But according to Mohsen Fahmi, portfolio manager for global fixed income at Pacific Investment Management Company (PIMCO), the U.S. "twin deficits" may cause the dollar to weaken, but the pace of the Fed's interest rate hikes seems to have a greater impact on the dollar.

In Fahmi’s view, rather than blaming the dollar’s ??weakness on the twin deficits, it is better to say that the following factors are at work: Many market participants seem to be quite convinced that the end point for U.S. short-term interest rates is 2.5% to 2.5%. 3% interval.

2

The Federal Reserve’s interest rate hikes also suppressed the U.S. dollar

He pointed out that in view of this, each successive interest rate hike by the Federal Reserve has become negative for the U.S. dollar, and It’s not bullish for the dollar because investors believe that every rate hike means we’re one step closer to our final destination.

Market participants also pointed out that the Federal Reserve is still raising interest rates at its own pace, and judging from the interest rate hike cycle, it may have entered the middle stage. In contrast, the overall global economic growth trend is expected to be stronger than that of the United States, which means that non-U.S. central banks should change their current loose policy stance, especially the Bank of Japan and the European Central Bank.

The dollar fell against most major currencies despite optimism about U.S. economic growth, massive tax cuts, increased fiscal spending and three interest rate hikes by the Federal Reserve in 2017. As the economic growth of other countries around the world is outstanding, it means that investor demand will shift away from the United States, which may also put pressure on the US dollar.

In addition, Reuters’ survey of economists, stock market strategists and analysts all believe that the U.S. government is wrong to cut taxes in the current economic cycle. Such fiscal decisions mean that the United States needs to strive for more Many overseas investors expect the United States to face more competition than before in selling bonds to foreign investors, and the result may be a weaker dollar.

3

Is an interest rate hike certain in March?

After Federal Reserve Chairman Powell’s relatively hawkish testimony and the release of strong non-farm data last month, the market expects three interest rate hikes this year, and there are also those who predict four interest rate hikes. rise.

Data released by the U.S. Department of Labor on Friday (March 9) showed that non-farm employment increased by 313,000 in February, recording the largest increase in a year and a half, far higher than the 200,000 in January. , the unemployment rate held steady at 4.1% for the fifth month in a row, but annual wage growth fell to 2.6%, less than January's 2.9%, construction, retail, professional and business services, manufacturing, financial activities and mining jobs The increase is obvious.

After the data was released, U.S. federal funds rate futures suggested that the probability of the Federal Reserve raising interest rates in March this year was 96.4%. In addition, if interest rates are raised in March, the probability of raising interest rates in June is 69.8% (lower than before the data was released); after interest rates are raised in both March and June, the probability of raising interest rates in September is 39.7% (lower than before the data was released). forward).

In addition, the Federal Reserve's latest economic report, the "Beige Book", showed that the U.S. job market continues to improve, but inflation remains moderate. Compared with the last economic report, this wording shows that the labor market has further improved, which may pave the way for tightening monetary policy. The Federal Reserve is certain to raise interest rates in March.

What about you? What do you think of the future trend of the US dollar?