1. Main features of US dollar banknotes:

Currency name: US dollar (UNITED STATES DOLLAR)
Issuer: U.S. FEDERAL RESERVE BANK
Currency symbol: USD
Token carry: 1 USD = 100 cents (CENTS)
Banknote denominations: 1, 2, 5, 10, 20, 50, 100 dollars. Large denomination notes of 500 and 1,000 dollar, which were previously issued, are no longer in circulation. There are 1 cent, 5 cents, 10 cents, 25 cents, and so on.

Since 1913, the United States has established the Federal Reserve System and issued Federal Reserve Notes. More than 99% of all banknotes in circulation are Federal Reserve Notes. The right to issue U.S. dollars belongs to the U.S. Treasury Department; the competent department is the Treasury; and the specific issuance business is handled by the Federal Reserve Bank. The U.S. dollar is the base currency in foreign exchange and the main currency in international payment and foreign exchange transactions, and it occupies a very important position in the international foreign exchange market.

The U.S. dollar is also known as the "green back". The earliest paper money in the United States was approved by the "Continental Congress" of the joint regime of the 13 colonies, and it was called "Continental Currency". In 1863, the Ministry of Finance was authorized to start issuing banknotes with green on the back, hence the name.

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2. Explanation of the US dollar index:

"It has been used to this day. Unexpectedly, the U.S. dollar index does not come from Chicago Board of Trade (CBOT) or Chicago Mercantile Exchange (CME) but from the New York Cotton Exchange (NYCE). The New York Cotton Exchange was established in 1870. It was originally formed by a group of cotton merchants and intermediaries; it is the oldest commodity exchange in New York and the most important cotton futures and options exchange in the world. In 1985, the New York Cotton Exchange established a financial department and formally entered the global financial commodity market. The first to launch was the US dollar index futures. The calculation principle of the U.S. dollar index futures is based on the trade volume between major countries in the world and the United States and calculates the overall strength of the U.S. dollar in a weighted manner, with 100 as the strength and weakness dividing line. A total of 10 countries have been adopted, as the calculation target is mainly based on the Euro, Japanese Yen, Swiss Franc, and British Pound. Factors affecting prices.


3. The overall performance of the US economy (the strength of the currency):

a. Trade current account (Trade Deficit)

The U.S. economy has continued to expand since the second half of 1999. The stronger consumer demand and the substantial expansion of business investment have led to a continuous and substantial increase in imports. However, because exports have not grown accordingly, the gap in the trade deficit has continued to expand. It stands to reason that this sometimes it must be resolved through the effect of currency depreciation, but because the United States still insists on a strong dollar policy, its trade deficit continues to expand, which will inevitably affect the strong position of the dollar in the long run.

b. Unemployment Rate

At the end of 1999, the U.S. unemployment rate fell to a new low since the 1960s. Fearing that the tightening of the labor market would lead to inflation, which would further reduce corporate profits, the FED began to implement a series of tightening monetary policies, which almost caused a hard landing crisis for the U.S. economy, and the unemployment rate even worsened. In March 2001, there was a new high in recent years.

c. Profit Earning
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Affected by the sharp increase in labor costs and capital costs and the slowdown in consumption, the profit level of American companies has shown a downward trend year by year. Since the beginning of this year, the continuous release of corporate profit warnings and downward adjustments in financial forecasts have seriously affected the economic strength of the United States. threaten.

d. Growth of Productivity

In order for productivity to continue to grow, even if labor costs increase, even if employment costs increase, it will not lead to inflation. Therefore, the key to the smooth landing of the United States will be productivity. However, since the beginning of this year, the capital utilization rate and capital equipment expenditure have repeatedly hit new lows, which is not optimistic news for the improvement of productivity. Recently, people from all walks of life, including Greenspan, have urged the Bush administration to speed up the cultivation of skilled labor, and this plan will have the opportunity to greatly improve the structure of the labor force, thereby increasing productivity. Overall, productivity growth is expected to flatten out this year, but it still has the power to curb inflation.


4. US interest rate trends:

Since the United States has a very strong and independent central bank, monetary policy has a key influence on its overall economic performance. Therefore, every routine meeting of the Federal Reserve to adjust interest rates will have an impact on the foreign exchange market. Since interest rates directly affect the level of fixed income in foreign currency deposits, the strength of the US dollar index is greatly affected by interest rate adjustments. In the past years when fixed currency income was emphasized, the higher the deposit rate of a country's currency, the more international funds would be remitted for arbitrage, which would make the exchange rate stronger. It is unfavorable to the overall performance of the stock market but instead makes international capital remittances out of countries that implement tightening monetary policies, and the exchange rate also weakens. The direction of interest rates depends on the above-mentioned overall economic factors, such as the inflation rate, money supply growth rate, economic growth rate, central bank policy, etc. Therefore, the market's expectations for the future level of US interest rates will affect the price of the US dollar index.


5. Stock market performance

If a country's stock market performs well, it will attract international capital inflows and investment, which in turn will drive up the exchange rate. This represents the new economic upsurge in US stocks. The astonishingly high return on investment has made high-tech stocks a super gold-absorbing machine in the world, and the US stock market has also launched a wave of bullish prices simultaneously.


6. The relative strength of other major currencies—the Euro

After the introduction of the euro, the German mark, the French franc, the Italian lira, the Dutch currency, and the Belgian franc are five-in-one. The euro has become the most important weighted currency, accounting for the total value of the US dollar index. The ratio is as high as 57.6%, which has a huge impact, and the weight also forms a trend of concentrating on the euro, yen, and pound. Therefore, the monetary policy trends of the European Central Bank and the economic performance of the euro zone are indispensable elements for observing the strength of the US dollar index.


7. The fundamental factors affecting the dollar:

Federal Reserve Bank (Fed): The Federal Reserve Bank of the United States, referred to as the Federal Reserve, the central bank of the United States, formulates monetary policy completely independently to ensure the maximum non-inflationary growth of the economy. The Fed's main policy indicators include open market operations, discount rate (Discount Rate), and federal funds rate (Fed Funds rate).

Federal Open Market Committee (FOMC): The FOMC is mainly responsible for formulating monetary policy, including making eight key interest rate adjustment announcements every year. The FOMC has 12 members, consisting of seven government officials, the president of the Federal Reserve Bank of New York, and four members elected for a one-year term by the presidents of the other 11 regional Federal Reserve Banks.

Interest Rates: The interest rate, namely the Fed Funds Rate, is the most important interest rate indicator, and it is also the overnight loan rate for mutual loans between savings institutions. When the Fed wants to send a clear monetary policy signal to the market, it announces new interest rate levels. Each such announcement has caused major turmoil in the stock, bond, and currency markets.

Discount Rate: The discount rate is the interest rate charged by the Fed when commercial banks apply for loans from the Fed for emergency situations such as reserves. Although this is a symbolic indicator of interest rates, changes in it can also express strong policy signals. The discount rate is generally less than the federal funds rate.

30-year Treasury Bond: 30-year treasury bonds, also known as long-term bonds, are the most important indicators for the market to measure inflation. In many cases, the market uses bond yields rather than prices to measure bond grades. Like all bonds, the 30-year Treasury bill has an inverse correlation to its price. There is no clear link between long-term bonds and the dollar exchange rate; however, there is a general link as follows: Falling bond prices because of inflationary considerations, i.e., rising yields, can put pressure on the dollar. These considerations may arise from some economic data.

However, as the US Treasury Department's "borrow new debt to pay old debt" program was implemented, the issuance of 30-yearTreasury bonds began to shrink, and the status of the 30-year Treasury bill as a benchmark began to give way to the 10-year Treasury bill.

According to different stages of the economic cycle, some economic indicators have different impacts on the US dollar: when inflation does not become a threat to the economy, strong economic indicators will support the US dollar exchange rate; economic indicators will weigh on the dollar exchange rate; and one of the means is to sell bonds.

As a benchmark for asset levels, long-term bonds are generally affected by global capital flows. Financial or political turmoil in emerging markets will push up dollar assets. At this time, dollar assets, as a hedging tool, will indirectly push up the dollar exchange rate.

3-month Eurodollar Deposits: Eurodollars are U.S. dollar deposits held in banks outside the United States. For example, the yen deposits deposited in foreign banks in Japan are called "European yen". This differential in deposit rates can serve as a valuable benchmark for evaluating foreign exchange rates. For example, taking USD/JPY as an example, when the positive difference between Euro/Dollar and Euro/Yen deposits is larger, the exchange rate of USD/JPY is more likely to be supported.

10-year Treasury Note: When we compare yields on the same type of bond across countries, we typically use 10-year Treasury bills. Yield differentials between bonds affect exchange rates. If the rate of return on US dollar assets is high, the exchange rate will push up the US dollar exchange rate.

Treasury: Ministry of Finance. The U.S. Treasury Department is responsible for issuing government bonds and formulating fiscal budgets. The Treasury has no say in monetary policy, but its comments on the dollar can have a big impact on the dollar exchange rate.

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

Stock Market: The 3 main stock indexes are: Dow (Dow Jones Industrial Average), S&P 500 (Standard & Poor's 500 Index) and NASDAQ (NASDAQ Composite Index). Among them, the has the greatest impact on the US dollar exchange rate. Since the mid-1990s, the Dow and the U.S. dollar have had a strong positive correlation (due to foreign investors buying U.S. assets).
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The three main factors affecting the Dow Jones Industrial Index are:
1) Company income, including expected and actual income
2) Interest rate level expectations
3) Global political and economic conditions

Cross Rate Effect: Cross rate effect. The rise and fall of the cross will also affect the dollar exchange rate.

Fed Funds Rate Futures Contract: Federal funds rate futures contract. This contract value shows the market's expectations for the federal funds rate (relative to the contract's maturity date) and is the most direct measure of Fed policy.

3-month Eurodollar Futures Contract: Like the Fed funds rate futures contract, the 3-month Eurodollar futures contract has an impact on 3-month Eurodollar deposits.

For example, the spread between the 3-month Eurodollar futures contract and the 3-month Euro/Yen futures contract is the fundamental change that determines the future direction of USD/JPY.

1. The characteristics of the euro currency:

The main features of Euro banknotes can be briefly summarized as follows:
Currency name: Euro
Issuer: European Central Bank
Currency symbol: EUR
Secondary currency carry: 1 euro = 100 cents (CENTS)
Banknote denominations: 5, 10, 20, 50, 100, 200, 500 Euros. Coins have 8 denominations of 1, 2, 5, 10, 20, 50 cents, 1 euro and 2 euros.

The name Euro was jointly decided by the participating countries when the European Parliament met in Madrid, Spain, in December 1995.The official abbreviation for Euro is EUR.

The symbol of the euro looks a lot like the E of the English letter, with two parallel lines in the middle. The idea of this symbol comes from the fifth letter (ε) in Greek. On the one hand, it respects the birthplace of European civilization. On the one hand, it is also the first letter of Europe, and the two parallel lines in the middle symbolize the stability of the euro.


2. Factors affecting the euro:

The Eurozone: Consisting of 20 countries: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain; all use the euro as their currency.

European Central Bank (ECB): Controls monetary policy in the euro area. The decision-making body is the Central Bank Council, which is composed of the Executive Committee and the central bank governors of the 12member countries. The Executive Committee includes the ECB President, Vice President, and four members.

ECB's policy objectives: the primary objective is to stabilize prices. There are two main bases for its monetary policy. One is the outlook on price trends and price stability risks. Price stability, as measured primarily by the adjusted Harmonized Index of Consumer Prices (HICP), keeps annual growth below 2%. HICP is particularly important. It consists of a series of indexes and expected values and is an important indicator for measuring inflation. The second is the money supply (M3), which controls money growth. The ECB set the reference value of M3 annual growth at 4.5%.

The ECB holds a committee every two weeks on Thursdays to formulate new interest rate targets. After the first meeting of each month, the ECB issues a briefing that outlines the outlook for monetary policy and economic conditions in general.

Interest Rates: It is the main short-term exchange rate in "borrowing new debt to repay old debt" used by the central bank to adjust the liquidity of the money market. The spread between this interest rate and the US federal funds rate is one of the factors that determines the EUR/USD exchange rate.

3-month Euro deposit (Euribor): A 3-month Euro deposit refers to deposits in Euros held in banks outside the Eurozone. Likewise, the difference between this interest rate and the interest rate for the same period in other countries is also used to evaluate the exchange rate level. For example, when the 3-month European Euro deposit rate is higher than the same 3-month Eurodollar deposit rate, the EUR/USD exchange rate will be boosted.

10-Year Government Bonds: The interest rate differential between 10-Year Government Bonds and US 10-Year Treasury Bonds is another important factor affecting EUR/USD. Typically, 10-year German government bonds are used as the benchmark. If its interest rate level is lower than that of US Treasury Bonds of the same period, then if the spread narrows (i.e., German bond yields rise or US Treasury Bonds yields fall), it will theoretically pushup the EUR/USD exchange rate. Therefore, the interest rate difference between the two is generally more meaningful than the absolute value of the two.

Economic Data: The most important economic data comes from Germany, the largest economy in the Eurozone. The main data report includes GDP, inflation data (CPI or HCPI), industrial production, and the unemployment rate. If looking at Germany alone, it also includes the IFO survey (which is a widely used survey of business confidence). There is also the fiscal deficit of each member state. According to the Stability and Growth Pact of the Eurozone, the fiscal deficit of each country must be controlled below 3% of GDP, and each country must have a goal of further reducing the deficit.

Cross Rate Effect: Like the dollar exchange rate, the cross will also affect the euro exchange rate.

3-month Euro Futures Contract (Euribor): This contract value shows the market's expectation of the 3-month European Euro deposit rate (relative to the contract's maturity date).

For example, the spread between the 3-month Euro futures contract and the 3-month Eurodollar futures contract is the fundamental change that determines the future direction of EUR/USD.

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3. Political factors:

Compared to other exchange rates, EUR/USD is most susceptible to political factors, such as domestic factors in France, Germany, or Italy. The political and financial instability of the former Soviet Union countries will also affect the Euro because a considerable number of German investors invest in Russia.

1. Characteristics of British Pound Currency

The main features of pound sterling banknotes can be briefly summarized as follows:
Currency name: British pound (POUND, STERLING)
Issuer: Bank of England
Currency Symbol: GBP
Sub-currency carry: 1 pound = 100 pence (PENCE)
Banknote denominations: 5, 10, 20, 50, 100 pounds. Coins have 8 denominations of 1, 2, 5, 10, 20, 50 pence, 1 pound and 2 pounds.

Since Britain was the first country in the world to implement industrialization and once dominated the international financial industry, the British pound was once the most widely used currency for pricing and settlement in international settlement business. After World War I and World War II, the economic status of the United Kingdom continued to decline, but due to historical reasons, the British financial industry was still very developed, and the British pound still occupied a considerable position in the settlement of foreign exchange transactions.

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2. Factors Affecting Pound Sterling

Bank of England (BoE): Since 1997, the BoE has acquired the function of independently formulating monetary policy. The government uses inflation targets as the standard for price stability, generally measured by the Retail Prices Index excluding mortgages (RPI-X), and the annual increase is controlled below 2.5%. Therefore, although monetary policy is set independently by government departments, the BoE is still subject to inflation standards set by the Ministry of Finance.

Monetary Policy Committee (MPC): This committee is mainly responsible for setting the interest rate level.

Interest Rates: The central bank's main interest rate is the minimum lending rate (prime rate). In the first week of each month, the central bank will use interest rate adjustments to send a clear monetary policy signal to the market. Changes in interest rates usually have a greater impact on the pound. The BoE also sets monetary policy by making daily adjustments to the interest rates at which it buys government bonds from discount banks (designated financial institutions that trade money market instruments).

Gilts: British government bonds are also called gilts. Similarly, the interest rate difference between the 10-year gilt yield and the yield of other countries' bonds or US Treasury bills in the same period will also affect the exchange rate of the pound and other countries' currencies.

3-month Euro/Sterling Deposits: Sterling deposits placed with non-UK banks are called Euro/Pound deposits. The difference between its interest rate and the European deposit interest rate of other countries in the same period is also one of the factors affecting the exchange rate.

Treasury: Ministry of Finance. Its function of formulating monetary policy has gradually weakened since 1997, but the Ministry of Finance still sets inflation targets for BoE and decides the appointment and removal of key personnel of BoE.

Sterling's relationship with the European Economic and Monetary Union: Sterling has often been weighed down by Prime Minister Tony Blair's comments about possible joining Europe's single currency, the euro. If the United Kingdom wants to join the Eurozone, the British interest rate level must be lowered to the euro interest rate level. If the public voted to join the Eurozone, the pound would have to depreciate against the euro in favor of the country's industrial trade. Therefore, any talk about the possibility of the UK joining the Eurozone will weigh on the pound.

Economic Data: Key economic data from the UK include Initial Unemployment Claims, Initial Unemployment Rate, Average Income, Retail Price Index Ex Mortgage, Retail Sales, Industrial Production, GDP Growth, Purchasing Managers Index, Manufacturing and Services Surveys, Money Supply Quantity (M4), income, and housing price balance.

3-month Euro/Sterling Futures Contract (short sterling): The futures contract price reflects the market's expectations of the European pound deposit rate three months from now. The interest rate difference between futures contract prices for the same period in other countries can also cause changes in the exchange rate of the British pound.

FTSE-100: The Financial Times Stock Exchange 100 Index. The UK's main stock index. Unlike the US and Japan, UK stock indices have relatively little effect on the currency. But despite this, the FTSE index and the US Dow Jones index have a strong linkage.

Cross Rate Effect: Cross rates also have an impact on the GBP exchange rate.

1. Currency characteristics of the Swiss franc:

Since Switzerland pursues a policy of neutrality and non-alignment, Switzerland is considered the safest place in the world and is known as a traditional safe-haven currency. Coupled with the protection policies adopted by the Swiss government on finance and foreign exchange, a large amount of foreign exchange has poured into Switzerland. The Swiss franc has also become a stable and popular currency for international settlements and foreign exchange transactions.

The main characteristics of its banknotes can be simply summarized as the following:
Currency name: Swiss Franc
Issuer: Swiss National Bank (BANQUE NATIONALE SUISSE)
Currency symbol: CHF
Secondary currency carry: 1 Swiss franc = 100 centimes (CENTTIMES)
Banknote denomination: banknote denominations are 10, 20,50, 100, 200, 1000 francs; coins are 0.5, 1, 2, 5, 10, 20 cents.

2. Factors affecting the Swiss franc:

Swiss National Bank (SNB): The Swiss National Bank has great independence in formulating monetary policy and exchange rate policy. Unlike most other national central banks, the SNB does not use specific money market rates to guide monetary conditions. Until the autumn of 1999, the central bank used foreign exchange swaps and repurchase agreements as its main tools to influence the money supply and interest rates.

Due to the use of foreign exchange swap agreements, the management of currency liquidity becomes the main factor affecting the Swiss franc. When central banks want to increase market liquidity, they buy foreign currencies, mainly dollars, and sell Swiss francs, thereby affecting the exchange rate.

Beginning in December 1999, the central bank's monetary policy shifted from the monetarist approach (mainly targeting the money supply) to an inflation-based approach with an annual inflation cap of 2.00%. The central bank used a range of the three-month London Interbank Offered Rate (LIBOR) as a means of controlling monetary policy.

Central bankers can influence currency movements through some commentary on the money supply or the currency itself.

Interest Rates: The SNB uses changes in the discount rate to announce changes in monetary policy. These changes have a big impact on the currency. However, the discount rate is not often used by banks as a discount function.

3-month Euro/Swiss franc Deposits: CHF deposits with non-Swiss banks are called Euro/CHF deposits. The difference between its interest rate and the European deposit interest rate of other countries in the same period is also one of the factors affecting the exchange rate.

Swiss franc as a safe-haven currency: The Swiss franc has historically acted as a safe-haven currency because of the SNB's independent monetary policy, the secrecy of the national banking system, and Switzerland's neutral status. In addition, SNB's sufficient gold reserves are also of great help to the stability of the currency.

Economic Data: The most important economic data for Switzerland include: M3 money supply (money supply in the broadest sense), consumer price index (CPI), unemployment rate, balance of payments, GDP, and industrial production.

Cross Rate Effect: Like other currencies, changes in cross-exchange rates will also have an impact on the Swiss Franc exchange rate.

3-month Euro/Swiss futures Contract: The futures contract price reflects the market's expectations for the Euro/Swiss franc deposit rate three months from now. The interest rate difference between the prices of futures contracts for the same period in other countries can also cause changes in the exchange rate of the Swiss franc.

Other factors: Due to the close ties between the Swiss and European economies, the exchange rates of the Swiss franc and the euro show a strong positive correlation. That is, the rise of the euro will also lead to the rise of the Swiss franc. The relationship between the two is the strongest of all currencies.

1. Introduction to the Japanese Yen Currency:
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The printing level of the Japanese Yen is relatively high, especially in papermaking. The unique Japanese product "Sanya leather pulp" is used as the raw material. The paper is tough and has a special luster. It is light yellow, and the larger the denomination, the darker the color. Japan is one of the countries with the fastest economic development since World War II. It currently has the world's largest import and export trade surplus and foreign exchange reserves. The Japanese yen is also one of the fastest-appreciating currencies after the war. Therefore, the status of the Japanese yen in foreign exchange transactions has become more and more important.

The main features of Japanese yen banknotes can be briefly summarized as follows:
Currency name: Japanese Yen
Issuer: Bank of Japan (NIPPON GINKO)
Currency symbol: JPY
Banknote denominations: 1,000, 2,000, 5,000, 10,000 yen, and coins of 1, 5, 10, 50, 100, and 500 yen.


2. Currency characteristics of the Japanese Yen:

Japan has adopted the gold standard system since 1886 and issued Japanese bank notes that can be exchanged for gold coins. During the First World War, Japan abolished the gold standard system. In 1964, the Japanese yen became an international currency. After the collapse of the Bretton Woods system, the Japanese yen implemented the floating exchange rate in 1971, and since then the yen has become stronger day by day, in sharp contrast to the weakness of the US dollar and has become a stronger international currency.

Japan is a country with poor natural resources and a small land size. The strong impetus for economic development must come from foreign trade. Japan’s imports are high, but its exports are even higher. It has a huge foreign trade surplus every year and is the third-largest import in the world. Japan's economy has maintained a high growth rate in recent years. The average growth rate of the gross national product from 1951 to 1973 was as high as 10.1%, ranking first among many western countries. In 1968, the Japanese gross national product had reached 142.8 billion U.S. dollars, second only to the United States, ranking second in the world. In 1985, Japan replaced the United States as the world's largest creditor country. Although the continuous appreciation of the yen in 1985 had a negative impact on the domestic economy, industrial production quickly increased after industrial adjustment. Recovery, the unemployment rate decreased. From the end of 1991 to the beginning of 1992, the Japanese financial scandal came out, the economy began to slump, and the growth rate slowed down. At present, the Japanese economy has not fully recovered. In March 2001, the Bank of Japan resumed zero interest rates again, aiming to stimulate the economy. This report studies the Japanese yen futures traded on CME with better liquidity.


3. Price level:

In countries with low price levels, since there is no inflationary pressure, the central bank can unscrupulously lower interest rates in order to stimulate the economy, and the relative exchange rate will thus have room for further depreciation; on the contrary, if a country’s price level continues to rise, in order to control prices, the central bank must raise interest rates. As a result, the exchange rate will also rise accordingly. As for the price changes in a country, they are generally determined by changes in the consumer price index.


4. Economic prosperity:

If a country's economy grows steadily, the country's central bank does not have to cut interest rates to stimulate the economy, and its exchange rate is naturally relatively stronger than that of countries with poor economic prosperity. If the country's economy is gradually recovering or improving, the unemployment rate continues to decrease, and export orders, leading indicators, and industrial production will continue to rise. 

5. The central bank's monetary policy:
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In order to achieve the two policy goals of stabilizing prices and promoting economic growth, the central banks of various countries have already established their own opinions on the trend of exchange rate fluctuations and the range of fluctuations they can tolerate. Interest rate policy, or direct market intervention, is always trying to pull the exchange rate back to the target zone. There are many factors that affect exchange rate fluctuations; some are predictable, some are unpredictable, some are economic, and some are political. 

6. Trade surplus and deficit:

If a country's trade surplus continues to expand, it means that under the current exchange rate, the country's exporters are very competitive in exporting, so the export value is greater than the import value, and the trade surplus will continue to increase. In this way, there will be appreciation pressure. Especially in recent years, the United States, the world's largest importer of trade, has always used the exchange rate as a country with a trade surplus. Japan requires a bargaining chip to reduce the trade deficit, making the trade surplus one of the keys to the long-term trend of the exchange rate. 

7. Interest rate trends:

In the current financial environment, where international funds move very quickly, arbitrage funds often flow from areas with low interest rates to areas with high interest rates. Especially when a country's interest rates gradually rise, its exchange rate tends to remain high. However, it still needs to consider the impact of changes in relative interest rates in other countries. 

8. The early historical trend of the yen:

In 1971, Japan began to implement a floating exchange rate system. In December of that year, the exchange rate was 1 US dollar: 308 yen, and the yen continued to appreciate after that.

In April 1995, the yen hit a record high after the war: 1 US dollar to 79.75 yen (the highest futures reached 1 yen: 1.2625 cents). 1995 was a year of turmoil in the international community, with frequent emergencies. Japan redeemed a large amount of overseas funds for reconstruction after the Great Kansai Earthquake; after the collapse of the US-Japan auto trade negotiations, the United States took a standby attitude towards the sharp rise of the yen in retaliation, followed by a financial turmoil in Mexico. At the same time, the U.S. provided huge sums of money to aid Mexico, causing the U.S. dollar to fall, and the soaring yen is extremely detrimental to the Japanese economy’s escape from the financial crisis, which in turn affects the recovery of the global economy. Under such circumstances, the U.S. and Japanese governments have joined hands again to cooperate, while intervening with the Japanese, German, and Swiss central banks, to advance the yen to 1 dollar to104 yen (1 yen to 0.9615 cents).

In 1998, Japan's economic situation was the most difficult. The economic growth rate dropped to 5.3% in the first quarter and 3.3% in the second quarter. Banks had serious bad debts. At the same time, the financial turmoil in Southeast Asia had a huge impact on Japan's overseas export market and investment market. However, the Japanese government was helpless against the economic recession, and the frequent economic policies were useless. Public dissatisfaction led to the resignation of the Hashimoto cabinet. Since the end of August, the yen has rebounded sharply. This caused the yen to rebound to a price of 114.33 (futures depreciated to 1 yen at the end of August: 0.6807cents) in just 2 months.

In general, the yen will always plummet (depreciate) when the economy is in a sharp recession, and it is extremely vulnerable to financial turmoil in Asia and other parts of the world. However, the appreciation of the yen is often not closely related to economic fundamentals. Usually, the appreciation of the yen. At that time, the Japanese economy was not ideal, often just out of the bottom, and the appreciation of the yen was large, usually rising by more than 10% at a time, which was closely related to the characteristics of the Japanese economy and the international foreign exchange market. In addition, after a period of time after each fluctuation in Japan, it will generally return to around 1:120 yen (about 1 yen:0.83 cents), mainly because of the comparison of economic strength between Japan, the United States, and other major European countries. No significant changes have taken place, so in the medium term, the yen usually returns to its long-term equilibrium price after fluctuating for a period of time.


9. Factors affecting the yen:

Ministry of Finance (MOF): The Japanese Ministry of Finance is the only department in Japan that formulates fiscal and monetary policies. The Japanese treasury has more influence over the currency than the U.S., British, or German treasuries. Officials of the Japanese Ministry of Finance often make some remarks on the economic situation, and these remarks generally affect the yen. For example, when the yen appreciates or depreciates against the fundamentals, the officials of the Ministry of Finance will verbally intervene.

Bank of Japan (BOJ): Bank of Japan. In 1998, the Japanese government passed a new law allowing the central bank to formulate monetary policy independently of the government, while the yen exchange rate remains in the hands of the Ministry of Finance.

Interest Rates: interest rates. The overnight lending rate is the main short-term interbank rate and is determined by the BOJ. The BOJ also uses this rate to express changes in monetary policy, which is one of the main factors affecting the exchange rate of the yen.

Japanese Government Bonds (JGBs): To enhance the liquidity of the monetary system, the BOJ purchases 10-year or 20-year JGBs on a monthly basis. The yield on the 10-year JGB is seen as a benchmark for long-term interest rates. For example, the basis difference between 10-year JGBs and10-year US Treasury bonds are seen as one of the factors driving the direction of USD/JPY interest rates. Falling JGB prices (i.e., rising yields) are generally positive for the yen.

Economic and Fiscal Policy Agency: On January 6, 2001, it officially replaced the original Economic Planning Agency (Economic Planning Agency, EPA). Responsibilities include articulating economic plans and coordinating economic policies, including employment, international trade, and foreign exchange rates.

Ministry of Economy, Trade and Industry (METI): A ministry of the Government of Japan created by merging the Ministry of International Trade and Industry with other ministries related to economic activities. Has jurisdiction over a broad policy area, containing Japan's industrial/trade policies, energy security, control of arms exports, "Cool Japan", etc.

Economic Data: The more important economic data for Japan include GDP, Tankan survey (quarterly business climate status and forecast survey), international trade, unemployment rate, industrial production and money supply (M2+CDs).

Nikkei-225: Japan's main stock market index. When the Japanese exchange rate falls reasonably, it will increase the stock prices of export-oriented companies, and at the same time, the entire Nikkei index will also rise. Sometimes, this is not the case, and when the stock market is strong, it will attract foreign investors to use the yen to invest in Japanese stocks, and the yen exchange rate will also be pushed up.

Cross Rate Effect: The effect of cross rate. For example, when EUR/JPY rises, it will also cause USD/JPY to rise. The reason may not bedue to the rise of the US dollar exchange rate, but to different economic expectations for Japan and Europe.

1. The characteristics of the Australian dollar currency:

Australia's new version of plastic banknotes was put into use after nearly 30 years of research and development. It is made of polyester material instead of paper. It is wear-resistant, not easy to break, not afraid of rubbing and washing, has a long service life and strong hand feeling, and has good anti-counterfeiting characteristics.

The main characteristics of Australian cash can be briefly summarized as follows:
Currency name: Australian dollar
Currency symbol: AUD
Secondary currency carry: 1 dollar = 100 cents (CENTS)
Banknote denominations: 5, 10, 20, 50, 100 dollar bills. Coins are 5, 10, 20, 50 cents
Issuer: Reserve Bank of Australia


2. Factors affecting the Australian dollar:

The Australian dollar, referred to as the Australian dollar ("Aussie" in English), is also known as the "commodity currency", and its exchange rate is closely linked to the prices of commodities such as gold, copper, nickel, coal, and wool, which account for nearly2/3 of Australia's total exports. Therefore, the highs and lows of the Australian dollar's trend are usually strongly affected by the price trend of these commodities. The Australian dollar often finds support in inflationary economic environments, at a time when commodity prices are high. For example, when gold prices rose in 2002, the Australian dollar also rose, and when metal prices fell back in the summer of 2002, the Australian dollar also fell back, and both rose again in the fourth quarter of 2004.

On the other hand, Australia's close ties to the Japanese economy (which absorbs 20% of Australia's exports) and the Eurozone economy explain why the Australian dollar follows the euro and the yen. For example, the inverse correlation between the exchange rate of the Australian dollar against the US dollar and the exchange rate of the US dollar against the Japanese yen in the foreign exchange market is relatively easy to identify. The AUD/USD exchange rate is expressed in the same way as EUR/USD and GBP/USD, indicating how many U.S. dollars are worth 1 Australian dollar.

Reserve Bank of Australia: Under the Reserve Bank Act 1959, the Reserve Bank of Australia acquired the status of Australia's central bank. The main task of the Reserve Bank is to keep the Australian dollar stable and maintain full employment. In 1993, the Reserve Bank of Australia gained the power to operate independently. At the same time, the work target of the Reserve Bank was also determined, which is to control the annual growth rate of medium-term inflation at 2-3%. The reason for having a medium-term rather thana short-term inflation target is to encourage healthy and sustainable economic growth.


3. The Reserve Bank Committee:

The Reserve Bank Board is responsible for setting monetary policy. The committee holds a monetary policy meeting on the first Tuesday of every month except January each year. The results of the interest rate decision are generally announced on the second day of the meeting. The committee is made up of nine members, including the Governor of the Reserve Bank, the Deputy Governor, the Secretary to the Treasury, and six other external members appointed by the Chancellor. The term of office of the President and Vice President is up to 7 years, and they can be re-elected. The term of office of the six external members is up to 5 years.


4. Interest rate:

The Reserve Bank's most important monetary policy tool is the overnight money market rate, or cash rate target. The cash rate is the overnight lending rate between two financial institutions.


5. The Chancellor of the Exchequer:

Although the Reserve Bank of Australia became independent in1993 and set an inflation target, the governor and deputy governor of the Reserve Bank still need to be appointed by the chancellor.

Australian Stock Exchange Trading Hours:
Monday to Friday 10:00-16:05 (local time) 8:00-14:05 (Beijing time)

1. The characteristics of the Canadian dollar currency:

Canadian residents are mainly descendants of British and French immigrants, who are English-speaking and French-speaking respectively. Therefore, both English and French are used on banknotes. Canada is a country of the Commonwealth of Nations, and the head portrait of the British ruler is mainly used as the main pattern on the banknotes.

The main characteristics of its banknotes can be simply summarized as the following:
Currency name: Canadian dollar
Currency symbol: CAD
Token carry: 1 dollar = 100 cents (CENTS)
Banknote denomination: 2, 5, 10, 20, 50, 100, 1000 dollar bills. Coins of 5, 10, 25, and 50 cents as well as 1 and 2 dollars
Issuer: Bank of Canada

2. Factors affecting the Canadian dollar:

Canadian dollar, referred to as Canadian dollar (English abbreviation "Loonie" (loon is a kind of water bird). There is a pattern of the loon on the Canadian dollar coin).

The Canadian dollar is unique in that there is more bilateral trade between Canada and the United States than between any other two countries. 80% of Canada's exports go to the United States, so the Canadian dollar exchange rate is closely related to the strength of the US economy. The Canadian dollar is also considered a "commodity currency" because about half of Canada's exports come from the export of goods. However, most of these commodities are non-energy commodities, so the Canadian dollar exchange rate is more affected by changes in the prices of non-energy commodities. Rising oil prices can put pressure on the Canadian dollar, as they weaken the Canadian dollar's purchasing power.

Bank of Canada: The central bank of Canada. The main goals of the Bank of Canada are "low and stable inflation" and "safe and reliable exchange rates". The Bank of Canada's inflation target (annual growth rate) is 2.0%, which is the midpoint of the 1.0–3.0% inflation target range. Although the level of inflation is calculated using the Consumer Price Index (CPI), the Bank of Canada uses the core CPI (excluding food and energy prices) as a practical reference to assess underlying inflation trends and better assess consumption changes in the price index in the future. The inflation target range is updated every five years, and the current target range of 1.0–3.0% will be updated in 2006.

The Bank of Canada's board of directors is made up of the governor, deputy governors, and 12 other directors. In addition, the Deputy Chancellor of the Exchequer also attends board meetings but does not have voting rights. The president and vice president are appointed by the directors for a term of 7 years, which can be re-elected. Directors are appointed by the Chancellor of the Exchequer. If the Chancellor of the Exchequer and the Bank of Canada disagree on monetary policy, the Chancellor of the Exchequer, after consultation with the Governor, may submit a written notice to the Governor for the Governor to implement.


3. Monetary policy:

It was not until November 2000 that the Bank of Canada began to introduce the new system of monetary policy meetings, that is, to determine the date of the eight annual monetary policy meetings in advance and announce the content of monetary policy on the day of the meeting. Previously, the Bank of Canada could adjust interest rates on any given weekday. Rate decision results are usually announced at 9:00 a.m. (local time) on a Tuesday or Wednesday.


4. Interest rate:

The key interest rate in Canada is the overnight or cash rate, which is the benchmark for the rate at which banks lend money between banks. The "Bank of Canada Rate", 50 basis points above the overnight rate range, is the rate that Canadian banking institutions pay to the Bank of Canada when they hold overnight funds using the "Volume Funds Transfer System".


5. Toronto Stock Exchange trading hours:
Monday to Friday 9:30-16:00 (local time) 22:30-5:00 (Beijing time)

1. An overview of gold and the US dollar:

The U.S. dollar exchange rate and the price of gold are like two ends of the scale. When the U.S. dollar strengthens, the price of gold suffers and falls. Conversely, when the U.S. dollar weakens, the price of gold rises. Zhang Genglun, a foreign exchange expert, explained that gold is priced in US dollars. When the US dollar appreciates, the cost of buying gold will become higher for other currency countries, which will further lead to adecrease in demand and a decline in gold prices.


2. What is the relationship between gold and the US dollar?

Gold is widely recognized as a hedge against inflation or economic and political turmoil due to its special attributes—scarce, easily divisible natural attributes, and possessing both commodity value and currency value.

As the most important currency in circulation in the world, the U.S. dollar is also considered an important safe-haven currency due to the comprehensive strength and stable monetary policy of the United States. The U.S. dollar is also the main way for gold to be priced and traded in the international market. The U.S. dollar index reflects the comprehensive change in the exchange rate of the U.S. dollar against a basket of currencies such as the euro and the Japanese yen and reflects the value of the U.S. dollar.

In the international market, the U.S. dollar is the denomination currency of gold, and to a large extent, it has a negative correlation with gold. When the U.S. dollar strengthens, that is, the potential for the vitality of U.S. dollar-denominated assets is greater, the risk appetite of the market is enhanced, and investors chase high-risk assets, then gold will be sold; when the U.S. dollar falls, the safe-haven demand for gold is boosted, and gold prices will rise.

But the negative correlation between the two is neither absolute nor stable. First of all, as safe-haven assets, when some major economic and political turmoil or public security crisis occurs and market sentiment deteriorates, the demand for safe-haven assets of both may be boosted at the same time, that is; they will move in the same direction.

At the same time, the price of gold and the U.S. dollar index are affected by various factors, so the correlation between the price of gold and the U.S. dollar is not stable. As a commodity, gold is used in some industrial fields and the clothing and jewelry industry. For example, the demand for physical gold in India increases every year around its important holidays. New gold mining will also increase the supply of gold, which will also be negative for the price of gold to a certain extent.

The U.S. dollar index will be affected by the exchange rate of the U.S. dollar against many countries. If the Brexit plan was carried out smoothly, the exchange rate of the British pound against the US dollar will increase; the European epidemic will enter a new peak; and new blockade measures will be launched, which will suppress the exchange rate of the euro against the US dollar. The respective monetary policies of the European and American central banks will affect regional inflation levels, which in turn affect the price of gold. Therefore, multiple factors resonate, and sometimes the dollar and gold are not completely reliable references to each other.


3. Review and Analysis of Gold Dollar Historical Price

(1) Gold dollar changes in the same direction:

Under the outbreak of the global epidemic, the safe-haven demand for gold and the U.S. dollar rose at the same time. From February 1 to February 20, 2020, the global epidemic began to break out and spread. As global safe-haven assets, the prices of gold and the U.S. dollar showed a rising trend: the U.S. dollar index rose from 97.3 to around 99.8, an increase of 1.5%, and the price of gold rose from 1,570 US dollars per ounce to 1,640 US dollars per ounce, an increase of 4.5%. At this time, the safe-haven nature of gold was highlighted. The epidemic in the United States had not reached its peak at that time, and global capital used the US dollar as a safe haven, driving up the US dollar index.

(2) Reverse movement of gold dollar:

In the middle of 2020, due to the large-scale outbreak of the epidemic in the United States, coupled with the uncertainty brought about by the stalemate in the US election at that time, international capital fled the United States one after another, US dollar assets were sold, the US dollar depreciated against many currencies, and the US dollar index fell accordingly. The risk attribute has been raised again. From May to August 2020, the price of gold rose from US$1,451/oz and broke through the mark of US$2,000/oz, while the US dollar index fell from 100 points to the support level near 90 points.

After September, the epidemic stabilized briefly, and gold and the dollar temporarily entered a period of sideways volatility. As the end of 2020 approaches, many biopharmaceutical companies, such as Pfizer, announced the positive results of clinical vaccines, which, to a certain extent, swept away the haze brought about by the global new crown epidemic in 2020. Market risk appetite increased, and the U.S. stock market resumed its rise. S&P500, Nasdaq, and Dow hit record highs several times. This led to a drop in demand for gold as a safe haven and a consequent fall in the price of gold. However, at the end of the year, the good news of the vaccine was diluted by the deteriorating actual situation of the epidemic, which caused the price of gold to fluctuate again.

At the same time, there are great uncertainties in the handover of the U.S. general election and the new U.S. stimulus plan. The exchange rate of the U.S. dollar against many countries is generally on the decline. The U.S. dollar depreciates, and the U.S. dollar index also fluctuates and falls.


4. Summary:

The US dollar and gold are closely related, interact with each other, and generally have a negative correlation, but each is affected by many factors. Therefore, when analyzing and investing in these two assets, itis necessary to analyze the supply and demand of gold, the international economic situation, the dynamic changes of the US dollar against a basket of currencies, and the monetary policy changes of the United States and other major world economies from a more macro perspective.

Investors need to pay attention to the fact that gold mainly exists as a safe-haven asset and may not bring in potential excess returns like investing in the stock market.

Every currency in the world has a 3-letter acronym accepted by the international financial market. The first two letters represent the country abbreviation, and the last letter represents the currency name.

For example: GBP stands for British Pound Sterling, which is formulated according to the ISO4217 international standard.

Below are the 3-letter codes for most of the world's currencies.

1. What is an Exotic Currency Pair?

Exotic currency pairs are currencies that are not frequently used in the foreign exchange market, and non-major currencies, usually issued by developing countries such as Asia, the Pacific region, the Middle East and Africa.

Because the activity of exotic currency pairs in the foreign exchange market is not as large as that of mainstream currencies, and the liquidity is not strong, it is not easy to trade exotic currency pairs. The mainstream currencies mentioned here include "major currency" and "minor currency".

The main currency is the currency that is frequently traded in the market, including the US dollar (USD), the euro (EUR), the Japanese yen (JPY), the British pound (GBP), and the Swiss franc (CHF). Although the Australian dollar (AUD) is often considered a minor currency, there are still some institutions that classify it as a major currency. Other minor currencies are the Canadian dollar (CAD) and the New Zealand dollar (NZD).

Exotic currency pairs are neither majors nor minors, but they are still important to the forex market.

2. What makes the trading of exotic currency pairs different?

The degree of attention to exotic currency pairs in the market determines that exotic currency pair transactions are different from major currency transactions. The relatively little liquidity in the markets for particular currency pairs means that trading these currencies is both costly and risky. Although high risk brings high reward opportunities, it is not easy to fully understand the exotic currency pair market. It lacks security. The political and economic environment of developing countries can change rapidly, causing changes in the value of their national currencies.

3. The exchange rate of exotic currency pairs:

Due to low liquidity and high risk, the spread of exotic currency pairs is larger than that of mainstream currencies. Traders should therefore trade specific currency pairs with caution and take into account high spreads when calculating potential profits. The spread represents the difference between what a market maker buys and what it sells to a dealer.

4. Cross exchange rate:

Most currencies are quoted against the U.S. dollar in a currency pair. Any quotation that is not based on the U.S. dollar is called a "cross quote". GBP/JPY (British Pound/Japanese Yen) is an example.

Cross quotations are done by first converting the price of GBP to USD and then converting the price of JPY to USD.

5. The calculation process is as follows:

GBP/USD = 1.7464
USD/JPY = 112.29

So, the cross quote is:
GBP/JPY = 1.7464 x 112.29 = 196.10

That is to say, 1 pound can be exchanged for 196.10 yen. There are many cross rates in particular currency pairs, usually they are less liquid and not easy to sell.