Cinda: Global liquidity has tightened and the US dollar index may enter a period of wide fluctuations in the second half of the year.

Cinda released a research report stating that inflation caused by Middle East geopolitical conflicts has become the DRIVE for the current global central bank monetary policy shift. Under the pressure of geopolitical-driven inflation, tightening policies in Europe and Japan have been implemented one after another, and the market's mainstream expectation is for the US to restart rate hikes. This may indicate that the era of global liquidity easing is coming to an end. If oil prices return to pre-conflict levels, the inflationary pressure brought by geopolitical conflicts is expected to ease. In this scenario, the bank believes that the Fed's motivation to raise interest rates may weaken, and rate hikes may be further delayed. The US Dollar Index is likely to enter a wide-ranging oscillation phase in the second half of the year as the geopolitical tide recedes. Cinda's main points are as follows: Global liquidity has entered a tightening range. Inflation caused by Middle East geopolitical conflicts has become the DRIVE for the current global central bank monetary policy shift. Under the pressure of geopolitical-driven inflation, tightening policies in Europe and Japan have been implemented one after another, and the US restarting rate hikes has become the market's mainstream expectation. The CFR global monetary policy tracking index covers 54 economies worldwide and measures the overall monetary policy stance in a weighted manner. According to the CFR's global monetary policy tracking index, many central banks globally are marginally tightening liquidity, and the global monetary policy tracking index broke slightly above zero in Q2 this year, entering a tightening range. During previous rate hike periods in the US, the US Dollar Index rarely showed sustained single-direction trends. Looking back at recent Fed rate hike cycles, the bank found that during rate hike cycles, the US Dollar Index rarely showed sustained single-direction trends and often entered periods of oscillation. Only the unexpected pre-emptive rate hike in 1994-1995 allowed the US Dollar Index to break out of a downward trend. In subsequent rate hike periods, the US Dollar Index tended to oscillate. From 2004-2006, the US Dollar Index entered a reverse-N-shaped oscillation; from 2015-2018, it entered a reverse-W-shaped oscillation; and in 2022-2023, with significant rate hikes, the US Dollar Index initially rose before peaking and falling back. The US Dollar Index may enter a wide-ranging oscillation phase in the second half of the year. The current tightening expectations mainly stem from the impact of escalating geopolitical conflicts on inflation. Compared to February before the conflict, PCE has risen by 1.2 percentage points, with over 80% of this rebound attributed to energy. However, this strong tightening momentum may begin to ease as there is a substantial marginal easing in the Middle East situation, and oil prices have fallen close to pre-US-Iran conflict levels. If the inflationary pressure brought about by geopolitical conflicts is expected to ease, the bank believes that the Fed's motivation to raise interest rates may weaken, and rate hikes may be further delayed. The US Dollar Index is likely to enter a wide-ranging oscillation phase in the second half of the year as the geopolitical tide recedes. Risk factors: Unexpected changes in global monetary policy, unexpected escalation of geopolitical conflicts, etc.