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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: Non-US currencies generally fell on Tuesday, will the US dollar regain favor?". Hope this helps you! The original content is as follows:
On Tuesday, the market's optimism about the trade agreement boosted the US dollar. The US dollar index hit a six-day high. As of now, the US dollar is quoted at 98.84.
Reuters survey: The Federal Reserve is expected to cut interest rates twice more this year, and the interest rate path in 2026 is highly uncertain.
Citigroup has turned bearish on gold prices, expecting it to fall to $4,000 within the next three months.
It is reported that Europe and Ukraine have formulated a 12-point Russia-Ukraine peace plan and will negotiate on the existing fronts. Trump said that no decision has been made on the Russia-Ukraine issue.
Foreign media: Russia reiterated to the United States last weekend its position of fully controlling Donbass; leaders of many European countries issued a joint statement supporting the immediate freezing of the current front lines in Ukraine.
Kremlin spokesman Peskov: The leaders of Russia and the United States have not determined a specific date for the meeting.
Canada’s core inflation indicators increased across the board in September, and the probability of the Bank of Canada cutting interest rates in October dropped slightly.
The pound against the dollar is caught in a tug-of-war between macro policy and fiscal difficulties. Although the Bank of England has maintained a hawkish stance in the global easing cycle and is about to achieve a lead in interest rate differentials due to the Federal Reserve's expected two more interest rate cuts this year, the pound has never been able to effectively break through 1.30-1.40 is the long-term key area. The fundamental contradiction is that the high interest rate of 4% in the UK is not a symbol of a strong economy, but a forced choice due to the sticky inflation of the service industry - the central bank needs to cut interest rates to stimulate the economy, but is unable to let go due to inflationary pressure. In addition, fiscal worries have become a heavy shackles for the pound. British Finance Minister Reeves faces a budget gap of about 25 billion pounds. Under the dual squeeze of reduced tax revenue caused by slowing economic growth and rising debt costs, the upcoming autumn budget will inevitably be accompanied by fiscal austerity measures. This prospect makes it difficult for investors to make the decision to go long on the pound amid a synchronized weakening of the U.S. economy.
However, three major factors have built up the pound's defenses: the dollar's own weakness, the data vacuum caused by the US government shutdown, and risk appetite supported by optimism in trade negotiations. This week's British and American inflation data will cause volatility - the UK's CPI is expected to rise to 4% year-on-year in September, which may prompt the Bank of England to stay on hold at its November meeting, while the Federal Reserve's expected interest rate cut next week will narrow the interest rate gap between the two countries.
The future path of the pound and the United States depends on three tests: the interest rate decisions of the British and American central banks in the next two weeks, and the fiscal details of the British budget at the end of November. Before the end of the data vacuum period, the pound against the US dollar is likely to maintain a volatile and strong pattern, but a recurrence of fiscal nightmares (such as the market turmoil during the Truss period two years ago) is still a potential risk.
The U.S. government shutdown has entered its 19th day and may enter its fourth week on Wednesday. This has become the third longest shutdown in U.S. history. Betting markets predict an 83% chance it will last 30 days or longer.
Federal Reserve Chairman Powell said that the labor market is showing significant downside risks, which effectively gave the Fed a green light to cut interest rates by 25 basis points at the October meeting. He noted that the longer the shutdown lasts, the greater the challenge for the Fed to assess the state of the economy due to a lack of top-level economic data. Powell also said that the reduction of the Fed's balance sheet means that bank reserves are moving from "adequate" levels to "adequate" levels, so the central bank may consider ending quantitative tightening (QT). We expect there may be an announcement at the October FOMC meeting, with the end date likely to be December.
The Federal Reserve's latest Beige Book shows that consumer spending is slowing, especially on leisure and hotel services. Low- and middle-income households are feeling the pinch of rising prices and high levels of economic uncertainty. Higher tariffs have been constraining manufacturing activity, while activity in agriculture, energy and transportation has also declined. High levels of uncertainty are expected to continue to weigh on economic growth.
Recently, the US dollar has once again shown a "smile effect", and its trend is affected by both market risk sentiment and interest rate advantages. And these two drivers tend to conflict with each other: rising risk aversionWhile pushing up the dollar, it may also prompt market expectations that the Federal Reserve will turn dovish, thereby weakening its interest rate advantage. For example, the recent banking crisis in the United States initially dragged down the U.S. dollar as the market strengthened expectations for an interest rate cut by the Federal Reserve. However, expectations for an easing of trade tensions at the beginning of last week not only boosted risk sentiment, but also prompted investors to reduce their dovish expectations, allowing the U.S. dollar to recover some of its losses.
Key data such as the US September CPI and October PMI preliminary values will be released this Friday, but before then, regional bank dynamics and trade progress are still dominant. We believe this effect will continue to be effective, but the struggle between the two major drivers may continue. If bank concerns gradually subside and hopes for trade reconciliation continue, the market may revise its overly dovish expectations for the Federal Reserve, and the U.S. dollar is expected to rebound based on its interest rate advantage, especially against safe-haven currencies such as the Japanese yen and the Swiss franc.
Although the government shutdown is still affecting the release of most official data, the Bureau of Labor Statistics will release the September CPI report this week because it is crucial to the calculation of the cost of living adjustment for Social Security benefits. As tariffs continue to put pressure on www.vifu.netmodity prices, both headline and core inflation are expected to increase by 0.3% month-on-month. The year-on-year growth rate is expected to remain basically stable: the overall inflation rate is 3.0% and the core inflation rate is 3.1%. If the forecast is accurate, the inflation data should not have a guiding impact on the Fed's subsequent policy decisions.
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