This means that with the temporary absence of the U.S. fiscal stimulus plan, the Fed will have to increase its QE measures to support the U.S. economic recovery. According to Phillip streble analysis, this makes speculators such as leveraged funds smell new opportunities to profit from short selling the dollar.
After the announcement of the meeting minutes, many leveraged funds quickly bought the short US dollar index option products which expired at the end of December and the strike price was below 90.
At the same time, the enthusiasm of global enterprises to use the US dollar to carry out investment and trade settlement is also weakening as the US dollar continues to fall.
According to the latest data from swift, about 37.82% of cross-border payments in October were denominated in Euro, while only 37.64% were in US dollar. This means that since February 2013, the euro has again surpassed the US dollar as the worlds largest payment currency.
At present, the proportion of cross-border investment in the U.S. dollar pool has been reduced as much as possible due to the fact that cross-border enterprises have not disclosed the proportion of dollar hedging in cross-border trade (the proportion of cross-border investment in the US dollar pool has not been reduced as far as possible) due to the fact that cross-border enterprises have not made an urgent decision to reduce the proportion of dollar hedging in cross-border trade.
This operation is also welcomed by our trading partners, who are also worried that the depreciation of the US dollar will eat up profits. The treasurer said. However, in the field of trade financing, banks are still more willing to provide us dollar loan positions, leading to enterprises having to pay extra fees for foreign exchange hedging and locking in the risk of dollar exchange rate depreciation.
Speculators short the dollar
A Wall Street hedge fund manager told reporters in the 21st century economic report that compared with the previous direct buying and falling of the US dollar index, the short selling action of the leveraged fund is more secretive. On the one hand, it buys the option products or swaps that put the dollar index down through the over-the-counter market; on the other hand, it simply buys up a basket of currencies such as euro, pound and Japanese yen, and makes a disguised bet on the dollar index Fall. The reason is that the US dollar index is mainly composed of euro, British pound, Japanese yen and other currencies. Betting on the rise of these currencies will increase the downward pressure on the US dollar index.
Leveraged funds are worried that the dollar may rebound unexpectedly near the years low of 91.75, leading to a loss in the short selling strategy. The hedge fund manager said.
The reporter has learned from many sources that the leverage fund has assumed several scenarios that make the US dollar rebound unexpectedly, such as the rise and fall of the US stock market, the development of the epidemic situation in Europe and the United States exceeding expectations, the recurrence of twists and turns in the vaccine research and development process, and the U.S. economic data under the impact of the epidemic situation is significantly lower than market expectations.
However, the secrecy of short selling does not mean that they will increase the strength of the dollars decline. Phillip streble points out. Especially after the Federal Reserve released the signal of adjusting QE bond purchase plan, many leveraged funds believe that the dollar index will have a 4% - 5% decline before the first quarter of next year. Therefore, they have increased the leverage ratio of short selling US dollar from 3 times to 4-5 times.
One of the important reasons why speculators dare to increase leverage is that the US Federal Reserve can only rely on QE measures to support the US economic recovery in the absence of a new US fiscal stimulus plan. This means that the liquidity of the US dollar will be more rampant, and the downward pressure on the US dollar will be greater. Phillip streble said.
In October, the use of Euro accounted for more than US dollar
Facing the falling dollar, large international enterprises have to reduce the proportion of US dollar in the field of trade and investment settlement.
A number of treasurers of large multinational enterprises disclosed to reporters that they had received a notice from the headquarters of enterprises to reduce the proportion of US dollars used in trade settlement as much as possible.
Collection companies are not willing to collect US dollars now, because as soon as they get us dollars, they may suffer from the loss of profits due to the depreciation of the exchange rate. Payment companies are not willing to use US dollars. In order to hedge the exchange rate risk of holding US dollars, many payment enterprises have to add exchange rate hedging investment, which leads to the increase of financial costs The analysis of the treasurer of multinational enterprises mentioned above.
The director of the overseas business department of a large domestic construction enterprise undertaking overseas power projects disclosed to the 21st century economic news reporter that when they undertook power projects in emerging market countries at the beginning of the year, they proposed to collect money by 30% US dollars and 70% local currency. With the continuous decline of the US dollar, the collection methods have been changed to 10% euro, 20% US dollar and 70% local currency.
Some emerging market countries believe that this is very difficult, because the foreign exchange reserves of these countries are mainly in US dollars, and the local governments are also worried about the risk of US dollar depreciation. They also hope to increase the proportion of euro and other non-U.S. currencies in foreign exchange reserves. As a result, project parties may not be able to apply for sufficient Euro positions from local banks for payment. The director said.
According to the latest data from swift, in the field of cash transfer, the proportion of Euro used in October exceeded that of US dollar. According to Oliver Pursche, chief strategist at Bruderman asset management, that means the fall in the dollar has affected its market share in global payments. If the dollar continues to fall, market share will continue to decline. But in areas such as trade finance, banks still offer dollar based loan positions because they believe that the dollar is more liquid and more efficient in financing. The treasurer of the aforementioned multinational enterprises said frankly. Therefore, enterprises can only pay an additional hedging fee for exchange rate risk to avoid the falling risk of US dollar, but this means that the reserve currency status of the US dollar may not encounter a huge impact due to the depreciation of the exchange rate. Source: Yang Bin, editor in charge of economic report in the 21st century_ NF4368
According to the latest data from swift, in the field of cash transfer, the proportion of Euro used in October exceeded that of US dollar.
According to Oliver Pursche, chief strategist at Bruderman asset management, that means the fall in the dollar has affected its market share in global payments. If the dollar continues to fall, market share will continue to decline.
But in areas such as trade finance, banks still offer dollar based loan positions because they believe that the dollar is more liquid and more efficient in financing. The treasurer of the aforementioned multinational enterprises said frankly. Therefore, enterprises can only pay an additional hedging fee for exchange rate risk to avoid the falling risk of US dollar, but this means that the reserve currency status of the US dollar may not encounter a huge impact due to the depreciation of the exchange rate.