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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: The popular candidate for the new chairman of the Federal Reserve advocates cutting interest rates, and the US dollar index is under pressure." Hope this helps you! The original content is as follows:
In the Asian session on Friday, the U.S. dollar index fluctuated around 99.58. Recent U.S. economic data showed a divergent trend, but it did not shake the market's core expectations for the Federal Reserve to cut interest rates in December. On the one hand, the producer price index was in line with expectations, sending a positive signal of easing inflation; retail sales growth in September was lower than expected, which to some extent offset previous optimistic data - new orders for durable consumer goods increased by 0.5% in September, exceeding expectations, and the number of initial jobless claims fell to a seven-month low in the week ending November 22. This differentiation just provides rationality for the Federal Reserve to continue to ease. The CMEFedWatch tool shows that the current market expectation is that the probability of an interest rate cut in December has reached 84.9%. This expectation directly inhibits the appreciation of the US dollar.
U.S. dollar: As of press time, the U.S. dollar index is hovering around 99.58. The U.S. dollar index continued its decline in light trading on Thursday and is expected to record its largest weekly decline in four months. As of the close, the U.S. dollar index rose slightly by 0.05% to 99.58, but the cumulative decline this week reached 0.60%, the worst weekly performance since July. Traders said that if White House economic adviser Hassett is named the next Federal Reserve chair, it would be a negative catalyst for the dollar due to his advocacy of interest rate cuts. Markets currently expect the Fed to cut interest rates by more than 90 basis points over the next year and a half.
Russian President Putin said on the 27th that the US delegation will visit Moscow next week. On the same day, Ukrainian President Zelensky also said that the Ukrainian and American delegations will hold talks later this week. A new round of contacts between the United States, Russia and Ukraine is imminent. The peace plan proposed by the United States on Ukraine has gone through many rounds of adjustments but the details are unclear. Russia and Ukraine still have serious differences on many core issues. From the "28 points" originally proposed to the "19 points" after the U.S.-Ukraine talks, to the "22 points" recently proposed by U.S. President Trump, the "peace plan" has changed again and again, and the deletions and changes in the terms have not been disclosed. Russia and Ukraine have huge differences on three major issues: it is difficult to reach agreement on the territorial issue, Ukraine needs to "join the treaty" and Russia must prevent it, and the upper limit of the Ukrainian military strength of 600,000 is difficult for Russia to accept.
The Japanese government is planning to fund a new round of economic stimulus package through a large-scale issuance of government bonds. According to a report by the Japan Broadcasting Association today (November 27), the Japanese governmentAn additional 11.7 trillion yen, or approximately 529.9 billion yuan, of government bonds will be issued to cover the spending gap caused by the large-scale economic countermeasures announced last week. Some Goldman Sachs analysts pointed out that the economic boosting effect of this large-scale fiscal stimulus plan may be "much lower than expected." The Bank of America warned that Japan's stimulus scale this year is much larger than last year, which will put Japan's fiscal deficit at great risk of expanding again in 2026. The International Monetary Fund also predicts that Japan's fiscal deficit will worsen further in 2026.
The current fluctuations in the pound/dollar exchange rate are largely affected by the www.xmxmxm.cnbined impact of U.S. economic data, the Fed’s policy guidance and changes in leadership expectations. Although the U.S. dollar rebounded slightly from a one-week low, causing GBP/USD to show weakness in the 1.3265-1.3270 range in early European trading, this rebound in the U.S. dollar is more of a technical correction and is difficult to form a trend strength. The Federal Reserve's dovish stance constitutes a core suppression. Recent economic data in the United States have shown a mixed trend, but they have not shaken the market's core expectations for the Federal Reserve to cut interest rates in December. On the one hand, the producer price index was in line with expectations, sending a positive signal of easing inflation; retail sales growth in September was lower than expected, which to some extent offset previous optimistic data - new orders for durable consumer goods increased by 0.5% in September, exceeding expectations, and the number of initial jobless claims fell to a seven-month low in the week ending November 22. This differentiation just provides rationality for the Federal Reserve to continue to ease. The CMEFedWatch tool shows that the current market expectation is that the probability of an interest rate cut in December has reached 84.9%. This expectation directly inhibits the appreciation of the US dollar.
Potential changes in the leadership of the Federal Reserve will have long-term effects, further limiting the dollar’s rebound space. White House National Economic Council Director Kevin Hassett, a close ally of Trump, has emerged as a favorite to succeed the Federal Reserve chairman. The market generally expects that he will implement his demand for a sharp interest rate cut after taking office, which has significantly weakened the safe-haven appeal of the US dollar. At the same time, the overall optimism in the market www.xmxmxm.cnbined with speculation that Federal Reserve Chairman Powell may be replaced has jointly constituted resistance to the upward trend of the US dollar and provided underlying support for the GBP/USD exchange rate.
British Chancellor of the Exchequer Rachel Reeves announced the 2025 autumn budget on November 26. With “stabilizing expectations” as the main line, she continued the path of both tax increases and expenditure expansion, trying to find a balance between fiscal balance and political stability. The most attention-grabbing adjustment in this budget is to raise the economic growth forecast for 2025 to 1.5% from the previous 1%. In his speech, Reeves announced a tax increase for all people, with a total tax increase of approximately 40 billion pounds. This move promoted the pound/dollar exchange rate to rebound. The new tax revenue will be mainly used to expand welfare expenditures and reserve fiscal space to deal with future economic shocks.
This tax increase covers areas such as landlords (the tax burden may be passed on to tenants), dividends and luxury homes. Analysts say tax increases could slow economic growthslow down and trigger the risk of capital outflows. Despite the above concerns, Reeves' statement still boosted the performance of British assets: the 10-year British government bond yield fell to 4.42% from this week's high of 4.629%, and the FTSE 100 index rose 0.85%. One of the core reasons for the strength of British assets is that most major tax increases will be postponed until after the next general election (the general election needs to be held before the summer of 2029 at the latest), which will not have a direct impact on the economy in the short term.
The British Treasury officially announced the latest budget plan for 2025 on Wednesday, with "tax increase, open source + price control" as the core The core framework, on the one hand, curbs the expansion of public debt through structural fiscal and tax reforms, and on the other hand, introduces targeted relief measures to alleviate price pressures, aiming to pave the way for the Bank of England (BoE) to adjust its monetary policy and thereby reduce the interest burden on government debt. However, many experts from mainstream economic institutions spoke out intensively after the plan was announced, pointing out that although some of the measures in the budget can moderately suppress inflation in the short term, it will be difficult to fundamentally solve the structural contradiction of rising prices in the long term. The Bank of England's interest rate cut process will still face multiple constraints, making it difficult to achieve substantial acceleration.
Marcel Thiriant, Japan expert at Capital Economics, pointed out that the latest data shows that the Japanese labor market continues to be tight, and the core inflation rate excluding fresh food and energy is expected to remain above 3%. The Bank of Japan is likely to restart the interest rate hike cycle in the next few months. Although employment growth accelerated year-on-year in October, the simultaneous expansion of the labor force kept the unemployment rate stable. Tiriante added that the central bank's latest Tankan survey showed that labor shortages remain at their most severe level since the early 1990s. Although the elimination of utility subsidies and gasoline surtaxes may push overall inflation to below 2% early next year, Tiriant expects core inflation, which excludes fresh food and energy, to slowly fall back. Overall, the conditions for implementing tight monetary policy remain www.xmxmxm.cnplete.
Pictet Asset Management strategist Luca Paolini said that as economic growth slows to pave the way for further interest rate cuts by the Federal Reserve, the U.S. dollar will face a new round of weakness next year. He noted that U.S. dollar interest rate differentials are narrowing significantly. "We expect the U.S. economy to become slightly softer, which will allow inflationary pressures to slowly dissipate." In relative terms, economic growth is likely to improve in other parts of the world, especially Europe and Japan. Beyond that, U.S. dollar valuations remain high. Pictet expects the U.S. dollar index to fall to 95 by the end of 2026, from around 99.55 currently.
JPMorgan's head of European interest rate strategy research said on Thursday that Britain's tax increase budget reduces near-term uncertainty but will not change the bank's expectations for a rise in Treasury yields next year. FrancisDiamond said: "The short-term uncertainty surrounding the budget and the possible impact of the budget on the UK government bond market has been eliminated because there is more room for maneuver." He also said: "In the medium term, I think there is always a difficult problem... With the 2029 election approaching, there are still doubts whether these tax increases can achieve the expected goals." Currently, investors welcome Reeves to leave more policy space, but also warned that there is uncertainty about the outcome of the budget - because most tax increases will take effect later rather than in the short term. Diamond said the tax increases in the budget did not change his view that the Bank of England would cut interest rates three more times by June next year before leaving the policy rate unchanged at 3.25%. Furthermore, he still expects the yield on 10-year gilts to rise to 4.75% by the end of 2026, from just under 4.50% currently.
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