Golden Finance reports that the global foreign exchange market is in a state of flux. Trade uncertainty and the unexpected decline in US inflation data have jointly become key variables influencing currency trends. Under the combined effect of the two, the US dollar index has shown a significant downward trend. After recently breaking through the key support level, it has further expanded its decline and has dropped to a three-year low against a basket of currencies.
The US inflation data released on Wednesday was lower than market expectations, which greatly affected investors’ confidence in the economic outlook of the United States. Lower inflation data may suggest that the growth momentum of the US economy is insufficient, thereby reducing the appeal of dollar assets to overseas investors. Meanwhile, the uncertainty of the global trade situation continues to rise, and the frequent adjustments of trade policies in various countries have led to a pervasive risk-averse sentiment in the market. Investors are seeking more stable asset allocation one after another, which has also weakened the dominant position of the US dollar to a certain extent.
While the US dollar is weakening, the euro has seized an upward opportunity. European Central Bank Executive Board member Schnabel issued a statement saying that as inflation gradually stabilizes near the European Central Bank’s target, the current (loose) monetary policy cycle “is coming to an end”. This statement sent out a strong signal, indicating that the European Central Bank’s subsequent monetary policy may shift. The market expects that the economic outlook of the eurozone is likely to improve, pushing the euro against the US dollar to rise sharply, reaching a three-and-a-half-year high at one point.
As the two most important currencies in the world, the significant fluctuations in the exchange rates of the US dollar and the euro will have a profound impact on international trade, cross-border investment and the global financial market. For the United States, although the depreciation of the US dollar is to some extent beneficial for export enterprises to enhance their competitiveness, it may also trigger imported inflation and increase the import costs of domestic enterprises. From the perspective of the Eurozone, the appreciation of the euro helps enhance consumers’ purchasing power and lower the prices of imported goods. However, it may pose challenges to export-oriented enterprises and weaken their price advantage in the international market.
In the global financial market, the reverse movement of the US dollar and the euro will also affect investors’ asset allocation decisions. The intensified volatility in the foreign exchange market has exposed investors to higher risks and prompted them to re-examine their investment portfolios and seek more diversified and stable investment targets. Subsequently, as global economic data is released one after another and the monetary policies of various countries are dynamically adjusted, where the exchange rate trends of the US dollar and the euro will go and how the global financial market will evolve are worth close attention from all market participants.
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