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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Review]: Federal Reserve officials released a signal of interest rate cuts, and the US dollar index fluctuated near the 98 mark." Hope it will be helpful to you! The original content is as follows:
On Thursday, the US dollar index consolidated above the 98 mark, and the US dollar fell against the yen and Swiss franc on Wednesday. Previous economic data showed weak labor market conditions, supporting investors' expectations for the Federal Reserve to relax monetary policy. This trading day will be released on the number of layoffs of challenger www.vifu.netpanies in the United States in August, changes in the number of ADP jobs in the United States in August, the number of initial unemployment claims for the week ending August 30, and the US ISM non-manufacturing PMI in August. In addition, the US Senate Financial www.vifu.netmittee held a hearing on the nomination of Milan as the Federal Reserve Board. FOMC Permanent Voting www.vifu.netmittee and New York Fed Chairman Williams will speak at the New York Economic Club, and investors need to pay attention.
U.S. dollar: As of press time, the US dollar index hovers around 98.17. Market participants expect the Federal Reserve to cut interest rates twice this year, and some traders even bet on the third rate cut in early 2026. The Fed's dovish tendency remains the main driving force behind the continued weakness of the US dollar, which also makes the US dollar the worst performer in 2025, with a decline of nearly 10% year-to-date. From a technical perspective, the US dollar index is currently slightly above the 50-day moving average support level of 98.000. If the day's high is 98.635, it may further move towards 98.834 or even 99.320 points. However, if the 98.000 point cannot be maintained, the selling pressure may intensify, and the US dollar index may fall to 97.859, and further downward targets will be towards 97.536 and 97.109.
The Fed Beige Book report shows that economic activity in most parts of the United States in recent weeks has "little or no change in economic activity." "Most of the 12 jurisdictions have reported little or no change in economic activity since the last Beige Book," the report released Wednesday read. "In various jurisdictions, contacts reported consumer spending remained flat to a decline as many residents' wages failed to keep up with the pace of rising prices. "The Beige Book said that prices have risen in all regions, with 10 jurisdictions reporting inflation "moderate or harmonious”, two other jurisdictions reported "input price growth strongly." "Almost all jurisdictions mentioned tariff-related price increases, and contacts in many jurisdictions reported that tariffs had a particularly significant impact on input prices," the report said.
According to CME's "Feder Observation": the probability of the Federal Reserve maintaining interest rates unchanged in September was 3.4%, and the probability of a 25 basis point cut rate was 96.6%. The probability of the Federal Reserve maintaining interest rates unchanged in October was 1.6%, the probability of a 25 basis point cut rate was 46.8%, and the probability of a 50 basis point cut rate was 51.6%.
As the dollar is dragged down by political factors, European central banks are reassessing their reliance on the Fed. Adam Posen, director of the Peterson Institute for International Economics, called on the ECB to explore joint pooling dollar reserves with other central banks to ensure emergency liquidity supply when the Fed is poorly supported during the crisis. Although the Fed renewed currency swap agreements with several central banks earlier this year, the global dollar financing market is huge (estimated to $29 trillion), while foreign dollar reserves hold only $7 trillion, meaning any alternative arrangement can only respond to local events. These concerns have prompted ECB regulators to monitor European banks' dollar exposure more closely and accelerate efforts such as digital euro research and development.
Party participants expect the Fed to cut interest rates twice this year, and some traders even bet on the third rate cut in early 2026. The Fed's dovish tendency remains the main driving force for the continued weakening of the US dollar, which also makes the US dollar the worst performer in 2025, with a year-to-date decline of nearly 10%. The popular theme of "short the US dollar" has further heated up since the end of March. A survey conducted by Reuters between August 29 and September 3 showed that 78% of respondents expected that the www.vifu.net short position of the US dollar would either increase or remain stable as of September. It is worth noting that no one of the foreign exchange strategists surveyed expected the US dollar to reverse to www.vifu.net long The continued political intervention also puts pressure on market sentiment. President Trump calls for a sharp drop to 1% and attempts to remove Fed Director Lisa Cook, which has sparked new concerns about the independence of the Federal Reserve. The proposals proposed by Fed candidate Stephen Miran to strengthen the president's control over the Federal Reserve (including the right to remove Fed leadership) have further aggravated these concerns.
The 30-year Treasury auction held on Thursday faces more uncertainty caused by global debt market turmoil and domestic political instability. Political instability has re-statedThis has sparked concerns about Japan's fiscal prospects. Investors are worried that the issuance of Japan's Ministry of Finance may face challenges in this bond issuance amid increasing doubts about debt sustainability and inflation remains stubborn. Although the 10-year Treasury auction earlier this week received good demand, the 30-year yield followed the decline in European and American long-term bonds in trading on Wednesday, soaring to a record high of 3.285%. Globally, ultra-long-term bonds have been under pressure again recently as fiscal concerns in major developed markets resurfaced, and institutional investors including insurance www.vifu.netpanies and pensions have turned to avoid long-term bonds.
www.vifu.netmerz Bank foreign exchange analyst Antje Praefcke pointed out that in his speech at Jackson Hall annual meeting, Powell emphasized the downside risks faced by the economy and employment - to balance the interest rate cut expectations of colleagues from the U.S. government, market and Federal Reserve's Federal Open Market www.vifu.netmittee with the inflation risks that may be triggered by tariffs - the current labor market data has attracted much attention than usual, and the impact weight of this data will also increase significantly. This naturally also means that if the labor market data is lower than expected, it may further significantly boost the Federal Reserve's expectation of interest rate cuts, and may even re-induce market expectations for one or more 50 basis points rate cuts. If this happens, I expect the dollar to suffer another heavy blow. If the ADP data released tomorrow is lower than expected (the market consensus is 80,000), it may lay the foundation for this bearish sentiment in the US dollar - although the index ultimately means little to the prediction of Friday's non-farm data.
On August 22, Federal Reserve Chairman Powell said at the Jackson Hall Global Central Bank annual meeting that the downside risks faced by the labor market are rising, adding that "the tightening of immigration policies has led to a sudden slowdown in labor growth." Coincidentally, San Francisco Federal Reserve President Daly also pointed out, since it is impossible to immediately determine whether the price increase related to tariffs is a one-time phenomenon, and waiting for certain evidence may cause damage to the labor market, the Federal Reserve cannot do so. Although the current market holdings indicate limited downward space for the US dollar, if the JOLTS report shows that the number of job vacancies has dropped sharply, it may further confirm that the situation in the US labor market has deteriorated, and the US dollar may be under pressure after the data is released. On the contrary, if the data is better than expected, it is unlikely to change the market's existing expectations for the Fed's policy outlook, so the potential boost to the US dollar trend will be very limited.
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