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market analysis
The market evaluates the Fed's position to further cut interest rates, and the US dollar index maintains consolidation pattern
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Review]: The market evaluates the Fed's position to further cut interest rates, and the US dollar index maintains a consolidation pattern." Hope it will be helpful to you! The original content is as follows:
On the Asian session on Friday, the U.S. dollar index hovered around 97.41, and the U.S. dollar rose against most major currencies on Thursday, a day after the Federal Reserve announced an expected rate cut, but suggested that it is not in a hurry to quickly reduce borrowing costs in the xm-forex.coming months. Data shows that the number of initial unemployment claims in the United States fell last week, reversing the surge in the previous week.
Analysis of major currencies
Dollar: The US dollar index rose sharply on Thursday based on a slight rebound on Wednesday, as rising U.S. Treasury yields rekindled demand for the US dollar. The move reflects that although the Fed just announced a rate cut the day before, economic data eased market concerns about weak labor markets and the overall U.S. fixed income market is repricing. Technically, the US dollar index is approaching a key resistance level. As long as US Treasury yields continue to rise and labor data does not weaken further unexpectedly, the US dollar outlook will remain constructive. If it continues to break through 98.238, the US dollar may open a stronger upward trend, especially when the Fed maintains a prudent tone and inflation data remains sticky. Although a short-term pullback is possible, traders will closely monitor yield levels and subsequent economic data to confirm whether the trend continues.
1. The Bank of Japan's interest rate resolution is approaching. Japan's inflation has dropped sharply due to the impact of subsidies. Affected by government utility subsidies, the pace of inflation in Japan suddenly slowed down, but it is still far higher than the Bank of Japan's target level. Data released on Friday showed that CPI, excluding fresh food, rose 2.7% in August from the same period last year, slowing down from the 3.1% increase last month. At the same time, this is also the lowest growth rate since November last year, which is in line with the median estimates of economists. The CPI data is unlikely to change the outcome of the Bank of Japan’s policy decision on Friday, as policymakers are generally expected to keep interest rates unchanged. Earlier this week, the Fed's high-profile interest rate cuts did not trigger sharp fluctuations in the market, and traders will pay attention to whether Bank of Japan Governor Kazuo Ueda in a press conference suggests the central bank is one step closer to hikes. 2. US media: The US Senate voted to confirm 48 Trump nominees
On Thursday, the majorityAfter the Republican Party used the "nuclear option" to make major rules amendments, the U.S. Senate confirmed 48 nominees for US President Trump in a vote. This partisan vote of 51 to 47 confirmed a series of deputy cabinet positions and ambassador candidates for President Trump. These include: former Republican Rep. Brandon Williams, who served as deputy secretary of nuclear safety; former Fox News host Kimberly Guilfoyle, who served as the U.S. ambassador to Greece; and Callista Gingrich, the wife of former House Speaker, who served as the U.S. ambassador to Switzerland and Liechtenstein.
3. BlackRock: UK long-term Treasury yields will attract much attention
BlackRock VivekPaul said in a report that before the UK's autumn fiscal budget was announced on November 26, investors may pay more attention to UK long-term Treasury yields. Concerns about the expansion of government lending scale are putting upward pressure on sovereign bond yields in most developed markets. The Bank of England has announced that it will reduce the scale of quantitative tightening to 70 billion pounds in the next year starting from October, lower than the 100 billion pounds in the past 12 months, meaning that the pace of quantitative tightening will slow down. The Bank of England also pointed out that among the treasury bonds sold in the future, the proportion of long-term treasury bonds will be lower than that of medium and short-term treasury bonds. Paul said: "Politicians hope these measures can help alleviate the upward pressure on long-term Treasury yields unique to the UK."
4. The Bank of England slowed quantitative tightening of 30-year Treasury yields rose.
After the Bank of England slowed down its pace of quantitative tightening, the UK's 30-year Treasury yields rose, although the slowdown was smaller than market expectations. The Bank of England announced that it plans to reduce its bond holdings of £70 billion in the next 12 months from October, a decrease from the £100 billion reduction in the past year. Some analysts, including TD Securities strategists, had previously expected the pace of quantitative tightening to slow down sharply, with a reduction of between 60 billion and 65 billion pounds. The Bank of England also stated that it will tend to increase the sales scale of medium- and short-term Treasury bonds in the future and reduce the sales volume of long-term Treasury bonds.
5. The number of initial requests declined. Enterprises "retain people" to resist volatility.
The number of people applying for unemployment benefits for the first time in the United States has declined the largest in the past four years, reversing the abnormal surge in the previous week. This trend is consistent with the current situation of low layoffs in the economy. The statistical cycle of the previous week includes Labor Day (a legal holiday in the United States), and the data around the holidays tend to be more volatile. The overall decline in first-time applicants suggests that businesses tend to retain existing employees even in an environment of uncertainty in the economy. Nevertheless, the labor market has shown signs of weakness: employment growth has slowed sharply in recent months, and both the supply and demand of labor have cooled down.
Institutional View
1. Bank of America: Bank of Canada is expected to decline in October and December25 basis points interest rate
Bank of the United States believes that the Bank of Canada will lower the policy interest rate below the "neutral interest rate" at a relatively fast pace and lower the interest rate to 2% by the end of this year. Economist Carlos Capistran said the goal will be achieved by cutting interest rates by 25 basis points each in October and December - a move further after the central bank initiated monetary easing this week. Capistran pointed out that the specific pace of interest rate cuts will depend on how core inflation responds to weak economic activity; but he currently predicts inflation will reach 1.9% by the end of this year and next year, while Bank of America Securities' previous inflation expectations for both time points were 2%.
2. Deutsche Bank: Given the unstable internal situation in the United States, the Canadian dollar will gradually rise against the US dollar.
xm-forex.commerzbank Michael Pfister said in a report that due to the impact of US tariffs on the Canadian real economy, the Canadian dollar will only gradually appreciate on the weaker dollar, while depreciating the euro. He noted that the Bank of Canada may cut interest rates further to support its economy after it cut interest rates by 25 basis points on Wednesday. Pfister believes that the Canadian dollar is likely to continue under pressure until the uncertainty related to U.S. trade with Canada is resolved. xm-forex.commerzbank predicts that the dollar-Canadian exchange rate will drop from the current 1.3782 to 1.3700 by December. The bank explained that the basis for this prediction is that the "unstable" political situation in the United States, the possible substantial interest rate cuts, and the risks facing the Fed's independence will all drag down the trend of the US dollar.
3. Bank of America: Powell's potential successor Waller seems to be satisfied with the rate cut of 25 basis points
Bank of America economists led by Bavi pointed out that Waller, the number one candidate who succeeds Powell, seems to be satisfied with the rate cut of 25 basis points. "We think Waller has dispelled concerns that his turn to dove in recent months was politically motivated, not economically. Whether this will have an impact on his Fed presidential candidate qualification remains to be seen," Bave said. However, this will not make the Fed's recent challenges easier. With inflationary pressures associated with tariffs increasing and labor markets deteriorate rapidly, internal debates can be very fierce. “Policy makers still have strong differences on the pros and cons of further easing policies, laying the foundation for a fierce vote in the last two meetings of the year,” said Samuel Tombs, chief U.S. analyst at Panson Macro.
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