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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The probability of the Federal Reserve's interest rate cut in October has increased significantly, and the US dollar index is under pressure." Hope it will be helpful to you! The original content is as follows:
On the Asian session on Monday, the US dollar index hovered around 97.74, and the US dollar strengthened last Friday, continuing the rebound trend for most major currencies. The Fed cut interest rates but suggested a gradual easing policy will be adopted in the future, and traders are reevaluating the short-term outlook.
U.S. dollar: As of press time, the US dollar index hovered around 97.75. Technically, the US dollar index soared from the low point of 96.218 to 97.809, close to the 50-day average of 98.081 and the 50% retracement level of 98.238. The 98.081–98.238 range is considered a potential resistance level, and the bears may regain control of the situation. If it can be confirmed that breaking through this range will have important technical significance or change market sentiment, but traders are still cautious when the resistance level is not broken.
ECB Management ehadb.cnmittee Stunaras said that the bank may have ehadb.cnpleted this round of interest rate cut cycle, and any further easing policies require substantial changes in inflation and economic growth prospects. He noted that although inflation is expected to be slightly below 2% and risk is skewed downward in the ehadb.cning years, this alone is not enough to justify continuing interest rate cuts. "Overall, in an uncertain environment, we are in a good equilibrium - not perfect equilibrium, but in good condition," said Stunaras, who is regarded as a dovish policymaker. "There is no reason to adjust interest rates at the moment." "We rely on data - if changes are found at monetary policy meetings, we will adjust accordingly," Stunaras said. "But this requires a significant change in the outlook to adjust the position." This remark echoes the recent statements of hawkish officials. Estonian Central Bank Governor Mueller said on Friday that the ECB policy has been slightly loose and there is no reason to cut further interest rates.
White House cronie Steve Bannon proposed an unusual solution to who will take over Fed Chairman Powell next year. In the interview, Bannon suggested that current Treasury Secretary Becente serve as chairman of the Federal Reserve, while retaining the position of Treasury Secretary. Bannon said: "I firmly believe that in the transitional stage, Becente should serve as both the Federal Reserve Chairman and Treasury Secretary. Maybe he can last until the midterm elections, then step down from the Treasury Department and take over the Federal Reserve in full." Bannon once served as the White House chief strategist during Trump's first term, but was dismissed after only seven months of his tenure. However, he still enjoys a certain degree of respect within the US government. A White House spokesman responded: "The White House has not yet and has never considered such an arrangement in the past."
Federal new director Stephen Milan made public clarification on Friday on his ehadb.cnmunication with US President Trump, emphasizing that his voting decision at this week's monetary policy meeting was made independently and had not been subject to any political interference. Previously, the Federal Reserve announced a 25 basis point interest rate cut, but Milan voted against this interest rate resolution, proposing to expand the rate cut to 50 basis points. He explained after the meeting that the decision was based on his independent judgment on the economic situation. In response to external concerns, Milan said that before the announcement of this interest rate resolution, he had only had a brief exchange with President Trump. He revealed: "He (Trump) called me on Tuesday morning just to express congratulations, that's all." Milan stressed that the two sides "have never discussed how I should vote, nor have I mentioned my 'dot map' position in the summary of the Fed's economic forecast."
Indian ehadb.cnmerce and Industry Department issued a statement on Saturday night local time saying that Minister Peyush Goyal will visit the United States next Monday. The trip aims to reach a "mutually beneficial" trade agreement, which shows that the tension between the two countries on tariffs and India's purchase of Russian oil has eased. The statement said the delegation planned to advance discussions in an effort to reach a mutually beneficial trade agreement as soon as possible. Goyal visited Washington in May this year and met with U.S. ehadb.cnmerce Secretary Lutnik. U.S. President Trump recently called to congratulate him on the occasion of Indian Prime Minister Modi's birthday, which made India cautiously optimistic about reaching a trade deal, and signs of easing relations between the two countries. But Trump has been continuously putting pressure on Europe to increase sanctions on India, the largest buyer of Russia's energy, which ehadb.cnplicates trade negotiations. Trump's decision to charge a $100,000 application fee for H-1B visa applicants has also raised concerns from Indian officials.
Wall Street currently believes that the rate of US interest rate cuts will be faster than the Fed's expectations. This bet is already boosting the economy and markets as it makes Americans’ borrowing costs less. Futures market bets show investors expect U.S. benchmark interest rates to drop from current slightly above 4% to slightly below 3% by the end of next year. This expectation was significantly revised from May: at that time, the market believed that interest rates would drop to around 3.5% by the end of 2026. This level is also lower than the forecasts of most Fed officials. Its latest "dot map" shows that officials expect interest rates to be 3.4% by the end of next year, two 25 basis points cuts less than investors' forecasts.
FAC said that the key data in the euro zone will be the initial value of the manufacturing PMI in September released on Tuesday. We believe that the data may weaken slightly because the improvement in manufacturing confidence may have ended. Consumer confidence may also weaken slightly in September. M3 money supply data may be displayed in AugustIt showed growth slowed to 3.1%, credit growth accelerated again, and the European Central Bank also plans to release its September economic bulletin. On Friday, the ECB will pay special attention to consumer inflation expectations in August, as the data has seen a surprise rise recently.
FAC said that the Fed’s decision to cut interest rates by 25 basis points meets general expectations and is not disappointing. Although our unconventional forecast for a 50 basis point cut rate cut is not realized, as we mentioned last week, if the September meeting decides to cut interest rates by 25 basis points, it is likely that October and December will continue to cut interest rates by 25 basis points each, and the median value of the dot chart does confirm this. We also note that the Fed expects interest rate levels to reach 3.38% at the end of 2026, which is consistent with our forecast but is nearly 50 basis points higher than the current market pricing. Next week, the market focus will ehadb.cnpletely turn to personal income and expenditure data and the inflation indicator favored by the Federal Reserve - the Personal Consumer Expenditure Price Index (PCE).
Rabobank Jane Foley said in a report that the Bank of England may not cut interest rates further this year, but the pound may weaken - on the one hand because the market has gradually digested the expectation of "no rate cuts", and on the other hand, concerns about the UK's fiscal sustainability are increasing. She noted that the market is still paying close attention to the difficult fiscal budget situation in the UK. Foley said the UK public sector borrowing data released on Friday in August was lower than expected, which "a timely reminder" of the current fiscal problems in the market and also highlighted the challenges British Chancellor Reeves will face in preparing for the November fall budget. Rabobank expects the euro to rise to 0.88 against pound in the next six months.
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