The dollar index maintains consolidation in the short term, paying attention to speeches by Fed officials

On the Asian session on Wednesday, the US dollar index fluctuated, and the dollar rose against the euro and Swiss franc on Monday, as investors digested a series of ehadb.cnments from Fed officials on its latest monetary policy stance. The dollar hovered around levels before the Fed decided to start cutting interest rates last week. Analysts say the current pricing is consistent with the Federal Reserve’s message, which emphasizes that growing concerns about the U.S. labor market are the main drivers of policy.

Analysis of major currencies

Dollar: As of press time, the US dollar index hovers around 97.30, with resistance at the short term at 98.238, and traders generally tend to believe that interest rate cuts will be cut again in October - so Powell's statement today may consolidate this expectation and may break this expectation. If he sends a signal of "staying patient" or reiterates concerns about inflation, the US dollar index may climb to the 98 mark; but if he expresses his dovishness (especially when referring to labor market risks), he may put pressure on the US dollar index to fall back to the fulcrum of 97.021. Before this, the US dollar index will most likely be mainly range oscillating. Technically, the US dollar index currently fluctuates within a narrow range of 96.218 to 97.823. If Powell's speech is dovish, the US dollar index may fall back to the fulcrum of 97.021; on the contrary, if his position is hawkish, it may push the US dollar index to break through 97.823, and the upward target may look to the 50-day moving average of 98.042 and the medium-term resistance level of 98.238. However, if you want to break through 98.238, you need enough momentum to support it to be regarded as an effective breakthrough. Risk preferences put pressure on the dollar, but the euro failed to exploit its weakness. Fed Chairman JayRom Powell almost repeated what he said during a FOMC press conference through the news channel.

Euro: As of press time, the euro/dollar hovered around 1.1806. On Tuesday, the euro/dollar remained firm above the 1.1800 level, when Federal Reserve Chairman Jerome Powell remained neutral. Business activity data in Europe and the United States suggest that the two major economies are slowing down. Technically, the Relative Strength Index (RSI) remained flat in the bullish area. Although positive, the lack of volatility may keep the EUR/USD sideways trading. On the downside, if it falls below 1.1800, the next key support level will be 1.1750. The next support level will be 1.1700, followed by 1.1560–1.1574 near the 100-day simple moving average and volatility lows on August 27.

GBP: As of press time, GBP/USD hovered around 1.3515, and GBP/USD continued its meager gain on Tuesday, rebounding from the 50-day index moving average (EMA) near 1.3500. The UK Purchasing Managers Index (PMI) data are generally lower than expected, but the pound (GBP) is still gaining gains due to the general weakness of the US dollar. The UK PMI was weaker in September than expected, while the US PMI data during the same period also showed weakness, but was still close to expectations. Overall market sentiment remains high, despite some sway, and the UK's economic data schedule is basically over the rest of the week. Technically, if GBP/USD falls below 1.3500, sellers may push the price to 1.3481 for the 100-day SMA, followed by 1.3467 for the 50-day SMA.

Summary of news from the foreign exchange market

1. Milan's first policy show said interest rates were too high. Trump's cronies explained why a significant rate cut was needed soon.

Federal Director Stephen Milan said interest rates were too high and explained the need for a significant cut in the next few months to protect the labor market. Milan, who has delivered its first policy speech since President Donald Trump's appointment as Fed governor, elaborated on the reasons for the decline in neutral interest rates that neither stimulate nor restrain the economy. Milan proposed that neutral interest rates, which could have been overvalued in the past, have recently declined due to tariffs, immigration restrictions and tax policies. This means interest rates should be significantly lowered to prevent damage to the economy, he said. “The result is that monetary policy is already severely restrictive,” Milan said in a pre-prepared speech at the New York Economic Club on Monday. “To short-term interest rates will beMaintaining at an overtight level of about 2 percentage points brings unnecessary layoffs and rising unemployment rates.

2. Japan's manufacturing PMI fell to a six-month low in September

Japan's manufacturing activity declined at the fastest pace in six months, mainly affected by the further decline in new orders. S&P Global Japan's manufacturing PMI fell to 48.4 in September, further below the 50 critical point and its lowest level since March. The manufacturing output index also fell to its lowest level in six months, while the new order index hit a new low in five months. ehadb.cnpanies attribute new order declines to cautious inventory policies in a difficult market environment, which led to a decline in production. But the decline in export orders slowed down from the 17-month low in August. At the same time, the cost pressure in the manufacturing industry has been alleviated. Raw material price inflation has fallen to its lowest level since the beginning of 2021. The service industry PMI performance was slightly optimistic, reaching 53.0 in September, and has remained in the expansion range for six consecutive months.

3. Fed Muffler: Powell believes that interest rates are still tighter or open up space for further interest rate cuts

The latest article by Nick Timiraos: Federal Reserve Chairman Powell said that even after the rate cut last week, he still believes that the Fed's interest rate stance is "still slightly tight", which means that if officials continue to judge that the recent weakness in the labor market exceeds the setbacks in inflation, there is still more room for interest rate cuts this year. Powell generally reiterated his views at a press conference after the rate cut last week. He highlighted the challenges the Fed faces in achieving the two goals of maintaining low inflation stability and promoting a healthy labor market. "Two-way risk means there is no risk-free path, and too much and too fast rate cuts may keep inflation close to 3% rather than the Fed's 2% target, while maintaining a restrictive policy stance may unnecessarily weaken the labor market," Powell said. He also reiterated his view that a slowdown in employment growth this summer made the policy shift last week necessary to focus more on the labor market than earlier this year. A slightly tight interest rate setting puts the Fed in a favorable position to cope with potential economic development.

4. The U.S. manufacturing industry accelerated and weakened in September. Shipping volume was particularly weak. Institutional analysis said that a survey on manufacturing activity in the fifth region of the Richmond Fed showed that manufacturing activity accelerated and weakened in September, with its ehadb.cnprehensive index falling from -7 to -17, the second lowest level in the past year. The shipment sub-item was particularly weak, falling from -5 to -20, the lowest level since May 2020. Unfortunately, there are growing rumors of manufacturing being weakening as the impact of tariffs increases (but not entirely consistent). The other two sub-indexes were -15, the new order index fell by 9 points, and the employment index fell by 4 points, but at least neither index was as weak as July. In other current status indexes, order backlogs fell by 9 to -21, capacity utilization fell by 19 to -18, local business conditions fell by 12 to -12, investmentThe data remains weak, and inflation data doesn't seem to be much better, with almost no change in annual growth rates of payment prices, and the expected pay price growth rate in the next 12 months is still high, while the expected receiving price growth rate has risen from 4.11% to 4.74%, which is good news for manufacturers, but is less optimistic for consumers.

5. S&P Global: PMI data shows that output continues to grow, but production faces some downside risks in the future. Williamson, chief economist at S&P Global, said that further strong output growth in September put a satisfactory end to the best quarter of US ehadb.cnpanies so far this year. PMI survey data is consistent with the annualized growth rate of 2.2% in the U.S. economy in the third quarter. However, monthly data show that economic growth has slowed from its recent peak in July, and ehadb.cnpanies also shrank recruitment in September, and future production faces some downside risks. Weak demand limits corporate pricing power. While tariffs are again considered a driver of rising costs of inputs in manufacturing and services, the number of ehadb.cnpanies that can raise sales prices and pass those costs onto customers has declined, suggesting profit margins are squeezed, but bodes well for slowing inflation. There are also signs in the manufacturing sector that disappointing sales growth has led to an unprecedented rate of inventory accumulation, which could also help further ease inflation in the ehadb.cning months. Still, survey data suggests that consumer inflation will still be higher than the central bank's 2% target in the ehadb.cning months.

Institutional View

1. Dutch International: Surveys show that the outlook for inflation in the euro zone has stabilized

Analyst Bert Colijn of Dutch International Bank wrote an article saying that there is almost no sign that inflation in the euro zone will rebound. Business surveys show that there is a lack of obvious signs of acceleration in prices or labor markets. Eurozone PMI shows that the rate of investment costs inflation has slowed this month, while sales prices have fallen to their lowest levels since May. At the same time, employment remained stable, ending the continued employment growth trend that had been continuously for six consecutive months. Colijn said this would help keep annual inflation near the central bank's 2% target. He added, "If the situation changes, inflation may be slightly below the target, but not enough to prompt the ECB to take action."

2. Bank of Sweden analysts: The possibility of further interest rate cuts this year by the Swedish central bank

The Bank of Sweden has sent signals that its policy rate cut cycle has ended, but Bank of Sweden has not ruled out the possibility of further easing later this year. The Bank of Sweden currently expects the central bank to keep interest rates unchanged at its next meeting in November, after it had expected further rate cuts. Bank of Sweden added: "However, our risk assessment shows that the economic recovery may be slower than expected, so we do not rule out the possibility of another rate cut later this year."

3. Deutsche Bank: There is room for further strengthening against the US dollar

LSEG data show that the Federal Reserve last weekAfter the rate cut, the euro hit a four-year high of $1.1918. Deutsche Bank's foreign exchange strategist said in a report that the euro will continue to rise against the dollar. The euro is expected to rise above 1.20 against the dollar as investors continue to withdraw from U.S. dollars.

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