After the outbreak of the new crown epidemic, especially after the Fed carried out a large-scale release of water, the market has always maintained a high degree of attention to the trend of the U.S. dollar index. The decline of the U.S. dollar index in June has also triggered market discussions on whether the U.S. dollar index will go all the way down. . For the trend of the US dollar index, we believe that monetary policy, economic fundamentals, and risk aversion are the three important factors that affect the current trend of the US dollar index. This article will also start from these three factors and give our follow-up US dollar trends. the opinion of.

The dollar cycle in history: For the dollar index, an important perspective is to look at the strength of the dollar from the perspective of the cycle. From a historical perspective, after the collapse of the Bretton Woods system in 1973, the U.S. dollar went through two complete cycles. The first round of the cycle occurred from July 1980 to December 1987, and the second round of the U.S. dollar cycle occurred from April 1995 to April 2008. The US dollar index is currently in the third round of the US dollar cycle. After the outbreak of the epidemic and the implementation of the Fed’s large-scale monetary policy, the market continues to pay great attention to the trend of the US dollar.

The factors affecting the trend of the US dollar index are as follows:

Under normal circumstances, when US interest rates fall, the trend of the US dollar will be weak; when US interest rates rise, the trend of the US dollar will be biased.

Most commodities on the international commodity market are priced in US dollars, so commodity prices have a relatively obvious negative correlation with the US dollar index.

The dollar index is basically a weighted index of a series of exchange rates, so it ultimately reflects the strength of the freely convertible currencies between the United States and its main trading currency. 1. U.S. federal benchmark interest

Under normal circumstances, when US interest rates fall, the trend of the US dollar will be weak; when US interest rates rise, the trend of the US dollar will be biased.

Second, the discount rate (Discount Rate)

The discount rate is the interest rate charged by the Fed when commercial banks apply for loans from the Fed due to emergency situations such as reserves.

  1. 30-year Treasury Bond

30-year Treasury bills, also called long-term bonds, are the most important indicator of inflation in the market.

Fourth, economic data (Economic Data)

Among the economic data released by the United States, the most important ones include: labor report (salary level, unemployment rate and average hourly income), CPI (Consumer Price Index), PPI (producer price index), GDP (gross domestic product) , GDP), international trade level, industrial production, housing starts, housing permits and consumer confidence.

  1. Stock Market

The three main stock indexes are: Dow Jones Industrials Index (Dow, Dow Jones Industrials Index), S&P 500 (Standard & Poor’s 500 Index) and NASDAQ (Nasdaq Index). Among them, the Dow Jones Industrial Index has the greatest impact on the US dollar exchange rate. Since the mid-1990s, the Dow Jones Industrials Index and the US dollar exchange rate have had a great positive correlation (because foreign investors buy US assets). The three main factors affecting the Dow Jones Industrial Index are: 1) company income, including expected and actual income; 2) interest rate expectations; 3) global political and economic conditions.

Six, commodity prices

Most commodities on the international commodity market are priced in US dollars, so commodity prices have a relatively obvious negative correlation with the US dollar index.

  1. Euro exchange rate

The dollar index is basically a weighted index of a series of exchange rates, so it ultimately reflects the strength of the freely convertible currencies between the United States and its main trading currency. In the basket of currencies formed by the US dollar index, the euro is the most weighted currency, and the trend of the euro has naturally become an important factor affecting the US dollar index.

The main influencing factors of the current dollar index
Regarding the trend of the US dollar index since the beginning of the year, we believe that there are three main factors affecting the US dollar index, namely, monetary policy, economic fundamentals and risk aversion. The trend of the US dollar is also the result of the combined effect of three factors. From the perspective of monetary policy, the Fed’s large-scale easing policy since the epidemic has been the main reason for the market’s long-term bearishness on the US dollar. The market generally expects that the Fed’s water release will continue. The fundamentals of the US economy are also an important factor affecting the US dollar index. Judging from the current performance of US fundamental data, the US economy is currently in a process of slow improvement. Therefore, from a fundamental perspective, the US dollar index may have some support. In addition to monetary policy and fundamentals, the risk aversion of the US dollar during the epidemic is very significant, so the subsequent risk aversion sentiment on the US dollar index cannot be ignored. As for the source of subsequent risk aversion, we believe that there are three main risk factors. The first is the global epidemic, the second is the approaching US general election, and the last is geopolitical factors.

How to treat the subsequent dollar trend?
For the subsequent dollar trend, with the slow recovery of the U.S. economy and risk aversion in the second half of the year, in the short term, we believe that the dollar downturn brought about by monetary easing may have been adjusted in stages. The dollar should not be overly bearish. From a long-term perspective, the Fed’s unlimited QE may bring about a change in the global monetary system, which will have a certain impact on the status of the US dollar. The recent trend of EU fiscal integration may pose a certain challenge to the US dollar. Regarding the subsequent movements of the RMB exchange rate, under the influence of the recent depreciation of the US dollar, the RMB exchange rate has support in the direction of appreciation. However, considering that there is still the possibility of fluctuations in Sino-US relations and the recent phased adjustment of the US dollar, the strengthening of the RMB exchange rate may not be achieved overnight, and the RMB exchange rate may maintain a volatile trend.