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A collection of positive and negative news that affects the foreign exchange market
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Hello everyone, today XM Foreign Exchange will bring you "【XM Foreign Exchange】: Collection of positive and negative news that affects the foreign exchange market". Hope it will be helpful to you! The original content is as follows:
1. Global economic and policy trends
Global economic growth slows down, and trade prospects are under pressure
The latest report of the United Nations shows that global economic growth is expected to slow down to 2.4% in 2025, a 0.4 percentage point lower than the forecast at the beginning of the year, mainly affected by the escalation of trade tensions and rising policy uncertainty. Large-scale U.S. tariff policies and countermeasures have weakened global growth prospects, with global trade growth expected to slow sharply from 3.3% in 2024 to 1.6% in 2025. This trend poses negative for risky currencies (such as the Australian dollar and Canadian dollar), and the US dollar may be supported as a safe-haven currency.
The Fed's policy differences are intensifying, and there are variables in the expectation of interest rate cuts
The Fed has obvious differences on interest rate cuts. Some officials (such as Waller and Goulsby) believe that the impact of tariffs on inflation is temporary and support the "favorable" interest rate cuts later this year; other officials (such as Kashkali and Logan) advocate maintaining interest rates stable and it takes longer to observe the actual economic response to policies. The market generally expects that the Federal Reserve's interest rate agenda meeting from June 17 to 18 will keep interest rates unchanged, but the dot chart may reveal expectations for future interest rate cuts, and if the dovish signal is released, it may suppress the US dollar.
The European Central Bank cut interest rates by 25 basis points, and the easing cycle is approaching its end.
On June 5, the European Central Bank announced that it would lower the three key interest rates in the euro zone by 25 basis points, effective from June 11, and the deposit interest rate will be reduced to 2.00%. After the interest rate cut, the ECB stated that the monetary policy cycle is about to end and that policy positions will be decided at a time of meetings based on data in the future.. Although the euro zone inflation rate is close to the 2% target, inflation expectations in 2026 are lowered to 1.6%, which may trigger discussions in the market about further interest rate cuts, and the euro may be under pressure against the US dollar in the short term.
The Bank of Japan maintains easing, and the risk of yen fluctuations remains
The Bank of Japan's May meeting kept interest rates unchanged, lowered its economic growth forecast for fiscal year 2025 to 0.5%, and lowered its core inflation expectations to 2.2%. Although the Bank of Japan said that interest rates will continue to be raised if the economy and price forecasts are achieved, market expectations for its policy adjustments have weakened, and the yen may continue to be weak against the backdrop of a stronger dollar.
2. Geopolitical and trade policy
Tension in the Middle East escalates, and risk aversion is heating up
The Israeli military launched a large-scale air strike on the southern suburbs of Beirut, the capital of Lebanon, on June 5. It was the largest attack since the ceasefire agreement in November last year, exacerbating geopolitical risks in the Middle East. At the same time, the Ukrainian conflict continued to escalate, and Russian ground forces advanced to Dnepropetrovsk Oblast for the first time. The two sides continued to attack from a long-range manner, further boosting the market's demand for hedging. Risk aversion sentiment may support safe-haven currencies such as the US dollar and the Japanese yen, suppressing risky currencies.
The tariff game between China and the United States continues, and policy uncertainty is high
The Trump administration's tariff policy still remains variable. Although the US federal court prevented some tariffs from taking effect on May 29, Trump may seek a new legal basis to restart tariffs. In addition, if the "Beautiful Act" is implemented, it will significantly increase the US fiscal deficit, which may trigger market doubts about the credit of the US dollar and be negative for the long term. The first meeting of the China-US economic and trade consultation mechanism is about to be held. If progress is made, it may alleviate market concerns about trade frictions and benefit risky assets.
The United States raises steel and aluminum tariffs to impact Japan's exports
The United States has recently raised steel and aluminum tariffs, and the transaction of the new Nippon Steel acquisition of US steel xm-forex.companies has been shelved due to the US government's review, and Japan's steel industry exports are under pressure. This could exacerbate pressure on the depreciation of the yen while affecting market expectations for a recovery in global trade.
3. Economic data and market sentiment
The US non-agricultural data was weak, and the economic outlook was cast on a shadow
The US non-agricultural jobs in May were 139,000, a new low since February. The data in the first two months was revised down by 95,000, indicating that the labor market was marginally weak. If subsequent data continues to be weak, it may strengthen market expectations for the Federal Reserve to cut interest rates and suppress the US dollar.
The global manufacturing PMI has contracted for three consecutive months
The global manufacturing PMI in May was 49.2%, lower than 50% for three consecutive months, indicating that the global economy is hovering at a low level. The US manufacturing PMI fell to 48.5%, a month-on-month decline for four consecutive months, further confirming the economic slowdown trend, which may curb risk appetite and be beneficial to the US dollar's demand for safe-haven.
State sentiment differentiates, VIX panic index climbs
On June 2, VIX panic index soars 7.86% to 20.03, investors have great differences in the market, and short-term volatility may intensify. Geopolitical risks and policy uncertainty are intertwined, and market risk aversion sentiment is heating up, which may drive funds to flow to safe-haven assets such as the US dollar and gold.
4. Other key influencing factors
China's monetary policy is loose, and the RMB exchange rate is under pressure
The People's Bank of China said on June 6 that it will implement a moderately loose monetary policy to maintain sufficient liquidity, which may alleviate the downward pressure on the domestic economy. However, against the backdrop of the strengthening of the US dollar, the RMB exchange rate faces depreciation pressure. The CPI and trade account data for May will be released today, and if the data is less than expected, it may further suppress the RMB.
xm-forex.commodity price fluctuations affect xm-forex.commodity currencies
The recent rebound in international oil prices may support the Canadian dollar, but expectations of global economic slowdown limit the gains; gold may indirectly affect gold-related currencies such as the Australian dollar due to rising demand for safe-haven. In addition, progress in rare earth negotiations (such as simplified export processes between China and the United States) may affect the currencies of related xm-forex.commodities.
Emerging market currencies are intensifying
Türkiye's closure of the Jayhan oil pipeline, the increase in production capacity in Brazil and Guyana affects crude oil supply and may impact emerging market currencies such as rubles and reals. At the same time, growing concerns about the U.S. fiscal deficit may trigger capital to return dollar assets from emerging markets.
5. Summary and Outlook
Favoritative Factors:
Feder dovish officials have sent out a signal of interest rate cuts. If the dot chart implies that interest rate cuts within the year may boost market risk appetite.
China-US economic and trade consultations have made progress to alleviate concerns about trade frictions.
Geopolitical risks have temporarily eased, and risk aversion sentiment has declined.
Badministrative factors:
Global economic growth slows down, and the worsening trade prospects suppress risky currencies.
The Fed has internal policy differences, and expectations of interest rate cuts have repeatedly disturbed the market.
The situation in the Middle East and Ukraine escalates, and the demand for safe-haven is pushing up the US dollar and the Japanese yen.
Operational advice:
U.S. dollar: supported by safe-haven demand in the short term, but is suppressed by fiscal deterioration and interest rate cut expectations in the long term. Pay attention to the dot chart of the Federal Reserve meeting in June.
Euro: The interest rate spread between the European Central Bank and the Federal Reserve widens after the interest rate cut, and it is under short-term pressure. We need to pay attention to the eurozone economic data.
Yen: The Bank of Japan maintains looseness, and geopolitical risks support demand for hedging, but bulls may trigger a pullback.
Renminbi: China's monetary policy is loose and the US dollar has strengthened, and the short-term depreciation is under great pressure. Pay attention to the economic data in May.
xm-forex.commodity currencies: The Australian dollar and Canadian dollar are affected by the global economic slowdown and xm-forex.commodity price fluctuations, so they need to be operated with caution.
Investors need to pay close attention to the Federal Reserve's interest rate agenda meeting, Sino-US economic and trade negotiations, geopolitical trends and economic data releases, flexibly adjust their holding strategies, and prevent market volatility risks.
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