ββ#ForexChief #Currency #forexnews #Yen #dollar #yuan #euro #stock #worldnews #USbond #BOJ #ECB #Eurozoneβ
π± Currency instability is a negative signal for the stock and bond marketβ
π The dollar, yen, euro and yuan are constantly unnerving adjacent markets. The main reason for the speculative dynamics remains the bullish trend of the dollar, caused by the growth in US bond yields this year.
β
A strong dollar helps the Fed curb inflation. The weak yen adds to the burden of the oil price surge and drives the yuan down. The euro is a victim of the lack of strong domestic demand.
β
Politicians can always control only two of the three factors: domestic monetary policy, exchange rates, or capital flows. Where the free circulation of capital is accepted, there is only a choice between adjusting the value of the
currency or an interest rate policy. And when these factors collide, it is the
currency that adjusts, not monetary policy.
β
Thus, the depreciation of the yen accelerated after the BOJ confirmed the yield cap on 10-year government bonds at 0.25%. Against this negative backdrop, Beijing allowed the yuan exchange rate to plummet by about 3.9% against the dollar, the sharpest decline since the 2015 mini-devaluation.
β
The ECB has to solve a whole range of problems: the Russian-Ukrainian conflict puts pressure on the eurozone economy, primarily by the price of oil and gas. The depreciation of the euro (about 14% per year) makes goods denominated in dollars even more expensive. With inflation in the Eurozone already above 7.5%, the ECB is expected to start raising the discount rate, but due to the lack of strong domestic demand, the European economy remains heavily dependent on exports to China and the US. We'll have to look for compromises.
β
Volatile foreign exchange markets are hurting bond and equity markets: US multinationals' first-quarter earnings and loss reports showed that the dollar is dragging down foreign earnings. So if Powell is afraid to act tough today, then stock portfolios will have to be reformatted to reflect the correction of the dollar.
β
Profits to yβall!