It’s not just the dollar that’s weakening: why the franc is the strongest currency of the year

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The Swiss franc has gained 6.78% against the dollar since the beginning of the year. In addition to the British pound, which gained 6.38%, the euro also became significantly more expensive against the dollar. By contrast, the Japanese yen lost 7.49 percent against the dollar.

The dollar’s further depreciation against the franc, euro and sterling in July was against the backdrop of the fact that asset managers took their bets on the falling dollar to a record high. The slowdown in US inflation is expected to accelerate the end of the Fed’s 16-month tightening policy.

Institutional investors, including pension funds, insurers and mutual funds, increased their net open positions in dollar terms by 18 percent to 568,721 contracts in the week ended July 18, according to data collected by Bloomberg from the Commodity Futures Trading Commission.

No more economic rallies excluded

The Bloomberg Dollar Spot Index posted its biggest drop in six months on July 12 after US government data showed inflation slowed more than economists had predicted in June. The Fed is expected to raise rates by 25 basis points this week, but may start lowering rates early next year. This is what overnight index swaps suggest.

Evaluating this week’s outlook and positioning data, ING Bank writes that investors entered this week’s Fed, ECB and BOJ monetary policy meetings with relatively large dollar short positions. But ING strategists are not ruling out another corrective rally in the short term. “While we welcome a weaker dollar later this year, the dollar’s last correction rally could continue this week if the Fed continues its tightening trend.”

Will the euro continue to rise?

According to the Bloomberg news agency, the nominal effective exchange rate of the common currency compared to the currencies of the Eurozone’s trading partners has never been higher. It’s also close to a three-year high against the yuan, potentially reducing the attractiveness of exports from the region.

Mark Dragten, head of discretionary currency at Insight Investment, said the strength of the euro was “absolutely” a concern for the ECB. “Europe sells a lot of products to China,” he said. “When the Chinese economy slows, you have to worry about demand.” While the ECB is considering a number of other currency measures besides the nominal effective interest rate, the common currency’s gains are starting to look uncertain.

17-month high against dollar

The euro is hovering near a 17-month high against the dollar and has risen more than 18 percent since the dollar fell below par against the dollar in September as the European Central Bank conducted the most aggressive monetary tightening cycle in its history. The European currency also appreciated against the Japanese yen and also appreciated against the British pound. Technical signals indicate that the currency is overbought.

While the Euro’s nine-week relative strength index showed a downward trend, the Commodity Channel Index, which measures current prices according to historical levels, started to decline, signaling imminent losses. “The euro-dollar has no business here and he knows it,” said Jefferies strategist Brad Bechtel.

The euro could follow suit with the pound if ECB President Christine Lagarde loosens her aggressive anti-inflation rhetoric at Thursday’s ECB monetary policy makers meeting. The British pound’s triumphant march was stalled after the rise in UK inflation data was surprisingly slow last week.

Source :Blick