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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market www.uniff.orgmentary]: Driven by expectations of an interest rate cut by the Federal Reserve, the U.S. dollar index will maintain a narrow range in the short term." Hope this helps you! The original content is as follows:
The U.S. dollar index remained within a narrow range in Asian trading on Thursday, and the U.S. dollar fell slightly against the euro on Wednesday as traders assessed the potential impact on the Federal Reserve policy of a large amount of economic data to be released after the U.S. government ends its shutdown. Meanwhile, the yen fell to its lowest level in nine months against the dollar on concerns that Japan's new government could pressure the central bank to delay raising interest rates.
U.S. dollar: As of press time, the U.S. dollar index is hovering around 99.50. The U.S. dollar has been under significant pressure recently. The core pressure stems from the weakness of the U.S. labor market and rising expectations of easing by the Federal Reserve. The continued shutdown of the U.S. government has led to the stagnant release of key economic data, leaving the market in a data vacuum. Investors are forced to turn to the statements of Federal Reserve officials for guidance. This week, the U.S. dollar index continued the correction trend since last week's high, providing phased support for the euro against the U.S. dollar. Technically, the 50-period moving average is trending flat, while the 200-period moving average still provides support near 99.00. If it can continue to break through 99.80, it may push the index to test the 100.35-100.65 range, which is consistent with the 23.6% Fibonacci retracement level. Relative Strength Index (RSI) readings around 45 indicate neutral momentum, but improving technical structure points to a gradual recovery.
UK employment data showed unemployment at 5% and wage growth slowing, raising the probability of a Bank of England rate cut in December to 90%. Technically, the technical picture for GBP/USD remains biased to the downside, although sellers will need to drag the pair below 1.3100 to challenge the latest cycle low of 1.3010 set on November 5. A break below these two levels could expose the April 7 low of 1.2707. Conversely, a daily close above 1.3100 could see the pair remain subdued around 1.3100-1.3150 in the absence of catalysts due to the limited UK economic calendar and the US government shutdown.
Federal Reserve officials have recently made intensive statements to discuss monetary policy. "Fed spokesperson" Nick Timiraos said that there are currently four local Fed presidents with voting rights (Boston Fed Collins, St. Louis Fed Musallem, Chicago Fed Goolsby, and Kansas Fed Schmid, who voted against the October interest rate cut resolution) and have not actively promoted another interest rate cut in December. Jin 10’s Note: The Federal Reserve rotates four regional Feds as FOMC voting www.uniff.orgmittees every year. Starting next year, the above four officials will lose their voting rights on the FOMC. The New York Fed has a special status and has permanent voting rights.
This year's FOMC voting www.uniff.orgmittee and Boston Fed President Collins said on Wednesday that she believed the threshold for further interest rate cuts in the short term was "relatively high" due to concerns that inflation remains high. Collins voted for a rate cut last month. “Unless there are signs of significant deterioration in the labor market, I would be cautious about easing policy further, especially if we have limited inflation data due to the government shutdown... In the current highly uncertain environment, it is important to balance inflation with employment.In view of industry risks, it may be appropriate to maintain policy rates at current levels for some time. Her speech highlighted deep divisions within the Fed. Since the last rate cut, several voting and non-voting Fed officials, including Collins, have signaled increasing caution about cutting interest rates. Collins believes that short-term borrowing costs are currently in "mildly tight" territory, while financial conditions generally remain a tailwind for economic growth. The labor market has indeed slowed, but downside risks have not intensified since the summer.
According to ECB executive member Schnabel, inflation risks in the euro area are tilted to the upside as the economy is gathering momentum and governments are starting to invest huge sums in military and infrastructure. Schnabel said: “My narrative is a recovering economy, the output gap is narrowing, and there is expected to be significant fiscal stimulus, which will stimulate the economy. Schnabel is currently seen as the most hawkish member of the management www.uniff.orgmittee. "This leads me to conclude that if there is any risk, it is that the risk is tilted to the upside," she added. The German official said she believed interest rates were at an "absolutely" appropriate level and that policymakers must remain vigilant against rising food costs that are "still quite strong" and the "stickiness" of service sector inflation. Schnabel said that overall, she was not worried about small deviations from 2% and downplayed potential downside risks.
According to foreign media reports, data showed that the British issued inflation-linked bonds Hooked bonds attracted record orders ahead of this month's budget. Investors subscribed to more than 69 billion pounds of bids for 4.25 billion pounds of UK debt syndicates on Wednesday. The sale is the last such bond sale before the budget on November 26. She is under pressure to increase fiscal space and recent reports suggested that she will raise taxes. UK government bonds recorded their best performance in almost two years, attracting investors including Aberd.een, Fidelity International and JPMorgan Asset Management, which also gave her some breathing room.
Francesco Pesole, an analyst at ING, said in a webinar that although fiscal risks have been digested before the budget on November 26, there is still room for the pound to weaken further. ING estimates that the fiscal tightening in the budget will reach 0.5% to 1% of GDP. Pesole said this could encourage markets to price in more rate cuts from the Bank of England, which would be negative for the pound. He also said growth expectations may also be revised downwards. Although GBP is currently selling expensively, we do not believe it will be attractive from a fundamental perspective over the next year.
Chris Turner, an analyst at ING, said in a webinar that if the Supreme Court rules that there are questions about the legality of Trump's use of emergency powers to impose www.uniff.orgprehensive tariffs, the dollar may fall. He believes that this decline will be realized mainly through the potential impact on the US bond market. He said the loss of tariff revenue could lead to a sell-off in long-dated Treasuries. The suspension of tariffs will also benefit the rest of the world, supporting other currencies. However, he added that Trump may find other ways to impose tariffs.
Analysts at www.uniff.orgmerzbank said in a report that increased bond issuance in the United States and Europe will prompt investors to demand higher risk premiums, thereby pushing up government bond yields and steepening the yield curve. They believe a steeper yield curve is expected on both sides of the Atlantic. However, with expectations for further interest rate cuts from the Federal Reserve, yields are unlikely to move significantly higher. www.uniff.orgmerzbank predicts that by the end of 2026, the German 10-year Treasury bond yield will rise to 3%, and the U.S. 10-year Treasury bond yield will hit 4.5%. According to data from Tradeweb, the 10-year German government bond yield rose 2 basis points to 2.675%, while the 10-year U.S. Treasury bond yield fell 2.3 basis points to 4.088%.
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