Interest Rate Hike of 25 Basis Points! Euro Fights Back

This week, the U.S. Federal Reserve and the European Central Bank made different interest rate decisions, indicating that the reverse drama of the euro suppressing the U.S. dollar is unfolding.

In the last two trading days, we have seen clear changes in the foreign exchange market, with the euro rising and the U.S. dollar index falling.

In many ways, the Chinese yuan and the Chinese economy have unexpectedly benefited from the currency war between Europe and the U.S. After the Federal Reserve decided to pause interest rate hikes, the European Central Bank still maintained an interest rate hike of 25 basis points, which is the eighth consecutive interest rate hike since the increase began in July last year.

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So far, the cumulative interest rate hike by the European Central Bank has reached 400 basis points, but it is still some distance away from the Federal Reserve's 500 basis point hike, due to the European Central Bank's late start in raising interest rates compared to the Federal Reserve.

It is precisely because of the different start times and cumulative magnitudes of the interest rate hikes by both sides that led to a period where the U.S. dollar kept rising, the euro exchange rate was suppressed, continuously falling, and the European economy was also harvested to some extent.

Over the past year, more and more countries have started to "de-dollarize," with the U.S. dollar gradually marginalized in world trade.

The U.S.'s prolonged interest rate hike actions have already hurt many countries.

European countries have seen the devaluation of the euro lead to increasingly expensive imported energy, causing serious damage to their economies.

Recently, there are still financial experts in the U.S. who believe that even if some countries are resisting the U.S. dollar, its status will not be easily shaken, and it will still be able to sit firmly in the position of currency hegemony in the future.

From a comprehensive data analysis, the U.S. dollar is still widely used.

The U.S. dollar has only fallen compared to its highest record usage in the past.

In contrast, the crisis faced by the euro seems more severe, with the euro's payment share in the Swift system falling by nearly 30% this year.

This is also caused by the U.S., with its continuous push for sanctions against Russia, leading to Russia abandoning the use of the euro in trade and a significant reduction in trade with Europe.

This ultimately led to a significant reduction in trade that originally used the euro, with the payment share dropping from over 38% to the current 30%, a decline of nearly 30%.

However, now the European Central Bank has decided to take advantage of the opportunity when the Federal Reserve has to stop raising interest rates to fight back.

The Federal Reserve did not raise interest rates this time, but the European Central Bank still did, and there have already been clear changes in the exchange rate.

At the beginning of June, the euro against the U.S. dollar fell to its lowest at 106, but in the past week or so, the euro exchange rate has been continuously rising, and it has approached the 1.10 threshold at its highest.

In addition to the European Central Bank raising interest rates, Australia and Canada have also raised interest rates, creating a joint effect of suppressing the U.S. dollar index, which has now fallen back to 102, and it is not ruled out that it will fall below 100 in the future.

Coincidentally, the U.S. economy has started to bubble in the past two years, with high inflation, debt, and other crises emerging, making the U.S. dollar a natural target.

Overseas investors have begun to withdraw from the U.S., and everyone has tacitly joined the de-dollarization action.

The U.S. is still in the process of self-destruction.

After the debt ceiling cycle was updated, the Treasury Department was eager to issue more U.S. Treasury bonds, wanting to use new bonds to fill the old holes, completely disregarding the fact that the Federal Reserve's interest rate hikes and balance sheet reduction are still absorbing more liquidity, which has accelerated the depression of the U.S. market.

On the other hand, the Chinese yuan has unexpectedly benefited.

Although the U.S. dollar index is not pegged to the Chinese yuan, the decline of the U.S. dollar index has led to more funds selling the U.S. dollar, with some of those funds turning to buy the Chinese yuan.

As a result, the exchange rate of the Chinese yuan has rebounded significantly in recent days, returning to around 7.10.

Over the past week, the inflow of funds into A-shares from the north has also increased significantly.

More and more top European corporate executives are also arranging visits to China.

The U.S. dollar has finally tasted the feeling of being suppressed.