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Fed rate cut expectations heat up, weakening of the dollar helps global markets
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Official Website]: The expectation of the Federal Reserve's interest rate cut has increased, and the weakening of the US dollar will help the global market." Hope it will be helpful to you! The original content is as follows:
Yesterday (August 12), the US inflation data was mixed, but the market response was very consistent. Core inflation in the United States hit its biggest gain this year, with the year-on-year growth rate in July rising to 3.1% higher than expected. However, the overall inflation decline exceeded expectations, falling to 2.7%. Normally, the Fed focuses on core inflation when formulating monetary policies. Logically speaking, the market may lower its expectations for a rate cut in September.
But this is not the case—instead, investors raised their expectations for a rate cut in September, believing that inflation in imported www.xmh100.commodities remains below concerns as www.xmh100.companies continue to bear tariff costs. As a result, after the data was released, the yield on the US 2-year Treasury bond fell, the probability of a rate cut in September jumped from 80% to 94%, and the US dollar exchange rate fell below the 50-day moving average. The index reversed the summer uptrend last week, and the drama of further weakening of the US dollar has already begun. Before the next resolution, there is a set of PCE (personal consumption expenditure), employment and CPI (consumer price index) data to be released (although there are reports that the new director of the U.S. Bureau of Labor Statistics is willing to suspend the release of monthly employment data). Still, the possibility of a 25 basis point cut in September is greater.
Things didn't end there. Treasury Secretary Scott Becent now calls for a sharp cut in September — a 50 basis point rate cut will help offset weak U.S. jobs caused by trade policy. This lays the groundwork for further steepening of the yield curve: the expected warming of interest rate cuts will lower the short end of the curve, while the surge in U.S. debt will prevent the same decline as the long end of the curve. Some people hope for the Trump administration's tariff revenue - and from Nvidia, Super MicroThe funds collected directly from www.xmh100.companies' overseas business can enrich the treasury, reduce the issuance demand for long-term treasury bonds, and help control the long end of the curve. Investors are now driven more by the prospect of the upcoming interest rate cuts that are expected to support economic growth, rather than debt concerns – even if they are near.
Yesterday, the S&P 500 hit a record high, with mid-cap stocks rising more than 2%, and small-cap stocks soaring 3%. Bullish sentiment dominated the market amid weaker dollar, strong corporate earnings, expectations of interest rate cuts and continued favorability for technology stocks.
Speaking of the US dollar, its weakening continues to support major currencies. The euro-dollar exchange rate continued to rise, breaking its 50-day moving average, while the pound-sterling-dollar tested strong resistance near the 1.35 mark - which is also the location of its 50-day moving average, and the pound bulls are likely to overcome this resistance. The UK employment data released yesterday was far stronger than expected, and the rise in inflation pressures fueled expectations that the Bank of England would postpone interest rate cuts in November. The www.xmh100.combination of the Federal Reserve is more dovish and the Bank of England is more hawkish, which should support the pound against the dollar and bring the 1.38 mark back to its visibility in the next few weeks. In other aspects of the forex market, the Australian dollar has strengthened against the dollar despite the RBA's announcement of a rate cut yesterday and suggesting that it will continue to cut interest rates in the future.
The weakening of the US dollar has made emerging market investment attractive again because it reduces borrowing costs and lowers the import prices of raw materials denominated in US dollars. Even better, the decline in inflation pressure creates conditions for loose monetary policy. For example, the Brazilian central bank has lowered its benchmark interest rate from 11.75% at the beginning of the year to around 10% in August without triggering an inflation rebound, with favorable conditions for the strengthening of the real and the reduction of import costs. Similar trends have emerged in Chile and Indonesia, with monetary stability providing policymakers with room to cut interest rates and stimulate economic growth. Therefore, it is no surprise that the Morgan Stanley Capital International Emerging Markets Index outperformed the S&P 500 this year, thanks to the loose monetary environment and the benefits of the weakening of the dollar - to some extent offsetting the drag caused by U.S. trade policy.
The weaker dollar should also help build a solid bottom for the decline in oil prices, as it will make oil cheaper globally. OPEC raised its global oil demand growth forecast by 100,000 barrels per day to 1.4 million barrels per day, meaning the market will be more tense than previously forecast. The organization also expects that oil supply from non-OPEC oil-producing countries will also reduce as much as possible due to lower oil prices. However, given OPEC's own vested interests, I remain cautious about its forecasts—in contrast, the U.S. Department of Energy recently raised its global oil surplus forecast to 1.7 million barrels per day this year. Nevertheless, I now think that if the dollar continues to weaken, U.S. crude oil prices should not continue to fall below $60/barrel - a positive adjustment www.xmh100.compared to my previous view that it might fall to $50/barrel.
In the short term, due to the United States last weekCrude oil inventories unexpectedly increased by 1.5 million barrels, and U.S. crude oil prices fell yesterday. But geopolitical risks remain skewed upward: the upcoming Trump-Putin meeting is unlikely to make any substantial progress on the Ukraine issue. If there is no progress, oil prices should rebound to US$65 per barrel and above.
The above content is all about "[XM Forex Official Website]: The expectation of the Federal Reserve's interest rate cut has increased, and the weakening of the US dollar has helped the global market". It was carefully www.xmh100.compiled and edited by the editor of XM Forex. I hope it will be helpful to your transactions! Thanks for the support!
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