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The US dollar hit its worst half-year decline in 50 years, and the return of the euro is aiming at 1.20?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Review]: The US dollar hits its worst half-year decline in 50 years, and the return of the euro is aiming at 1.20?" Hope it will be helpful to you! The original content is as follows:
Asian Market Review
On Monday, the US dollar index fluctuated downward during the day, falling below the 97 mark. As of now, the US dollar is quoted at 96.83.
Tariff policy development:
①White House: Trump will meet with the trade team this week to determine the national tariff rate. ② The US Secretary of Agriculture expects Trump to impose tariff exemptions on agricultural products that are not easy to grow in the United States. ③ Canada cancels digital service tax, and the White House says it will immediately restart negotiations with Canada. ④ EU officials said they went to the United States for trade negotiations on July 1. It is reported that the EU will accept Trump's general tariffs but seek exemptions from key industries such as drugs and semiconductors. ⑤ US Treasury Secretary Bescent believes that in the last week before the July 9 deadline, there will be a wave of intensive signing of trade agreements. ⑥Trump: There is no need to extend the July 9 deadline, and countries will be assigned tax rates, and Japan will pay 25% of automobile tariffs; it threatens to impose tariffs on Japan because Japan is unwilling to import US rice.
The Chicago business activity index in June fell slightly from 40.5 in May to 40.4, lower than the expected 43.0, the lowest level since January, meaning that economic activity has shrunk for 19 consecutive months; the Dallas Fed business activity index contracted for the fifth consecutive month.
Federal Bostic: I still expect a rate cut this year. There are three interest rate cuts expected next year, and there is no need to deal with inflation by hikes; Goldman Sachs will be the USThe Fed's forecast for interest rate cuts is ahead of September.
Trump once again criticized the Fed, saying "Mr. Too Chi" Powell and the entire Fed www.xmh100.committee should be ashamed of not cutting interest rates; Becente said Trump was considering appointing Powell's successor early next year, and hinted that there was a current director as a candidate.
Trump: Due to the sluggish oil prices, it is expected (Ukraine) to reach a ceasefire agreement with Russia.
The EU will extend sanctions against Russia for another 6 months to January 31, 2026.
CBS reporter: U.S. President Trump will sign an executive order on Monday involving easing sanctions on Syria.
Bestert: Stablecoin legislation may be www.xmh100.completed in mid-July.
Musk: If the "Big and American" bill is passed, a new party will be established in the United States the next day.
Summary of institutional views
Dutch International Group: Short-term data support the Bank of Japan's interest rate hike cycle
Dutch International Group said that the Bank of Japan's short-term data released earlier showed that despite the uncertainty of the trade war, large and small businesses in Japan remained optimistic overall. Manufacturers remain optimistic, as evidenced by manufacturing PMI entering the expansion for the first time in 12 months. The Bank of Japan may raise interest rates this year, but may be after the signing of the U.S.-Japan trade agreement. Dutch International Group expects a 25 basis point rate hike in October, but if the trade agreement is reached earlier than expected and the terms are more favorable, the rate hike may occur in September.
UBS: Non-farms put the euro at two-way risk, but it is unlikely to see a big drop
We expect U.S. jobs data this week will indicate that hiring intentions are gradually slowing. However, a sharp deceleration is not expected, so there is a possibility of an unexpected situation. Weak labor market data could impact the market as recent Fed www.xmh100.comments increase the likelihood of a rate cut in July. The market currently expects the possibility of the Federal Reserve cutting interest rates in July is 25%.
If the data is disappointing and market expectations rise to 50%, the July meeting will become a "real-time" meeting. Conversely, if labor market data rise unexpectedly, expectations for a rate cut in July may fade, supporting the dollar. The euro is currently slightly above our year-end forecast of 1.16, and the data may lead the euro to consolidate at a slightly lower level, but may also bring us closer to the long-term target of 1.20. In the short term, we are skeptical of the further rise of the euro against the dollar, but in the medium term, we still believe that the euro risk is biased towards upward.
Scotiabank Canada: Investors may have over-allocated high-valuation US assets, will the US index fall further?
The US dollar still maintains a weak tone overall, but the intraday trends are differentiated; the yen strengthens, the euro remains flat, and the pound weakens slightly among major currencies, reflecting the general lack of direction in the US dollar. Investors may be waiting for trade and fiscal progress in the www.xmh100.coming days. There are signsThe sub-trade agreements may be reached by the July 9 deadline, but these agreements appear to lack (a lot of) details and are far from reaching the radical reform of trade relations that President Trump has sought.
Senate Republicans are trying to reach agreements on various aspects of the President’s tax bill to make the progress he expected by this weekend. Yet turbulent trade policies, loose fiscal policy, and the president's ongoing slamming the Fed's leadership are undermining the attractiveness of the dollar and wider U.S. assets to international investors who may have over-allocated overvalued U.S. assets while under-held against the weaker U.S. dollar.
The US dollar index has successfully stabilized around 97 in the past few days, but the overall trend remains weak from a technical perspective. If negative headlines appear (such as weak non-farm employment report on Thursday), the downturn may put the index under greater pressure. We still believe that the US dollar index will fall back to the 90-95 range in the next few months.
"Daily Market Observation": This week will set the tone for the third quarter foreign exchange market, and don't believe the argument that "the dollar is dead" for the time being. Today, the dollar is facing downward pressure again - this is not because the US Congressional Budget Office predicts that the deficit will continue to expand (we are numb to the trillion-dollar deficit), but because the market is immersed in the vision of interest rate cuts. The futures market has fully priced a rate cut in September, and even gave a 20% chance of a rate cut in July. This expectation is quite radical, especially as Fed officials still claim to focus on data rather than political pressure.
In addition to expectations of interest rate cuts, global growth optimism has begun to regain momentum. Signs of substantial progress in the trade agreement—especially the approaching of the July 9 tariff deadline—returns traders to the inflation trading strategy. If the momentum of the trade deal continues, risk appetite will be boosted, global currencies will strengthen, and the US dollar may be at a disadvantage.
The euro has been testing breakthroughs against the dollar, but as the Fed is under more political pressure, the road to 1.20 suddenly becomes no longer out of reach, but more like a matter of time. The euro's rise did not www.xmh100.come from internal momentum, but was riding on the weak US dollar.
However, the euro zone CPI data may change this week. Germany's inflation data have begun to be released one after another, and despite rising to a moderate gain of 2.2%, any continued rise will www.xmh100.complicate the ECB's December interest rate cut plan. Since May, the 2-year euro-dollar swap spread has narrowed by 30 basis points, pushing the euro to quietly rise, but if the ECB insists on a wait-and-see attitude, there may be insufficient momentum. Euro fundamentals expectation: This summer rebound is likely to gradually weaken after the Fed repricing returns to reality, bringing the euro back to the 1.15-1.16 range.
In general, although it is not an emergency at the moment, as tariffs, taxes and U.S. bond volatility converge at the same time, this week may set the tone for the foreign exchange market in the third quarter. Stay flexible and don't believe the argument that the "dollar is dead" for the time being - it still has a few hits back yet.
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