What’s new?
EUR reached a 5-year low breaking bellow 1.05 before offsetting losses. News flow continue to weight on the common currency with Russia ban gas export to Bulgaria and Poland as they don’t comply to Russian demand to pay in Rubles. Last time the parity was reached was 20 years ago.
Expectation for FED rate hikes have bolstered the USD at the expense of other other G10 currencies. Dollar smile theory fully explain the performance of the greenback. It tends to outperform the market when the U.S economy is outpacing others as well as when risk aversion is high. Both conditions are met currently.
Is USD/HKD pet in danger?
USD/HKD quote is currently 7.8461, when it reached 7.85, HKMA will start buying unlimited HKD vs USD to defend the peg. The HKMA has $480B in reserve to defend it, so good luck for funds willing to attack it. From a macro perspective Hong Kong is not really in the same situation as U.S as deflationary pressure led by real estate meltdown doesn’t make sense with rate hikes.
However this what has already happened. 1y HIBOR rate was 1.72% at the beginning of the month, it is now 2.08% U.S peer was respectively 2.17% and 2.54% In the coming month, billion more of mortgage interest has to be paid by mortgage holder and the rising could also affect the real estate market already on the downtrend because of Covid.
What’s in the pipe?
- Bank of Japan monetary policy decision, Thursday
- U.S. 1Q GDP, weekly jobless claims, Thursday
- ECB publishes its economic bulletin, Thursday
FX rates
USD/JPY @ 130.61 - bullish trend
EUR/USD @ 1.0542 - Bearish trend
GBP/USD @ 1.2549 - Bearish trend
AUD/USD @ 0.7146 - Bearish trend
USD/CNH @ 6.6407 - Bullish trend
