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Inflation rises again! PCE rebounds may subvert expectations of interest rate cuts, and Fed's policy path changes
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Platform]: Inflation rises again! PCE rebounds may subvert expectations of interest rate cuts, and the Federal Reserve's policy path changes." Hope it will be helpful to you! The original content is as follows:
Asian market market
On Thursday, the US dollar index rebounded. Subsequently, as the US July PPI index was higher than expected, it may suggest that inflation will generally rise in the next few months. The US dollar index expanded its gains and returned to above the 98 mark. As of now, the US dollar is quoted at 97.97.
The US PPI annual rate in July recorded 3.3%, the highest since February; the July PPI monthly rate recorded 0.9%, the largest increase since June 2022. After the data was released, interest rate futures traders reduced their bets on the Federal Reserve's interest rate cut.
U.S. Treasury Secretary Bescent: It is unlikely that gold will be retained as a means of store of value and will be reevaluated; it did not call on the Fed to cut interest rates by 150 basis points, but pointed out that the model shows that neutral interest rates are at a lower level.
Federal officials refuted expectations of a sharp rate cut in September. Daly: A sharp cut of interest rates next month does not seem appropriate; Mousalem: The 50 basis point cut does not match the current economic situation or data.
Trump: If the meeting with Putin is effective, I will call Zelensky. If it is a bad meeting, I will not call anyone; this meeting with Putin sets the basis for the second meeting, and if the problem cannot be solved, sanctions will be imposed. According to market news, Western leaders are considering the possibility of holding a tripartite summit in Russia, the United States and Ukraine in a European city.
Russian President Putin: The United States seeks to reach an agreement that is acceptable to all parties and may reach a new arms agreement with the United States. The Kremlin said there is no plan to sign the results of the Russian-US summit.
The use of the Fed's overnight reverse repurchase tool was US$28.818 billion, a new low since April 2021.
Summary of institutional views
Bank of America: Data will show that inflation is still high, and market fanatical expectations of interest rate cuts are being challenged?
www.xmh100.combined with the US July PPI and CPI data released this week, we expect the Fed's most popular inflation indicator, the core PCE, to record a monthly rate of 0.3%, and the annual rate rose from 2.8% to 2.9%. However, this set of forecasts will also be fine-tuned based on the import price data released tonight, but because it only affects a single sub-item of PCE inflation, it usually fluctuates by no more than a few basis points. As a result, we believe inflation data will continue to stay away from the Fed's expected 2% target, challenging market expectations for the Fed's high interest rate cut in September.
Although the previous values of core PCE data in recent times were mostly upward reviews, this report may show that the May and June data may be slightly revised down by about 1-2 basis points, with little impact on the trend of inflation changes.
Mitsubishi UF: The US Treasury Secretary warned the Bank of Japan to "lag behind the curve", and the market speculated that the US was trying to put pressure on the US and became the best-performing currency during the day, which once caused the US and Japan to fall back to around the 146.000 mark. The main trigger for the strengthening of the yen was the remarks of US Treasury Secretary Bescent. In an interview with Bloomberg News yesterday, Bescent said that the Bank of Japan's (BoJ) policy "lagged behind the curve" and said that "they need to raise interest rates and also need to control inflation." He also added that he had discussed with Bank of Japan Governor Kazuo Ueda on Japan's inflation issue.
In response, a spokesman for the Bank of Japan has responded, saying that Becent and Governor Ueda regularly exchange views at international conferences. Nevertheless, Becente's remarks have created the impression that the Trump administration is trying to put more external pressure on the Bank of Japan to further tighten monetary policy, thereby pushing the yen to strengthen.
Recalling, the U.S. Treasury Department stated as early as June's semi-annual exchange rate report that the Bank of Japan should continue to promote policy tightening based on economic fundamentals (including growth and inflation) to achieve a much-needed rebalancing of the bilateral trade structure.
Dutch International Bank: The UK's GDP growth is full of "tricks". The growth in the second quarter is driven by non-core factors. On the surface, under the background of multiple internal and external adverse factors, the UK's economic growth of 0.3% in the second quarter is acceptable. But this growth is largely driven by factors that are not related to potential economic performance, so the Bank of England will be cautious. We expect economic growth to slow down in the second half of the year.
Despite the uncertainty, the UK's 0.3% growth in the second quarterIt doesn't seem too bad, at least on the surface. However, after a deep analysis, it is revealed that the data is not as impressive as it initially seems. Much of the growth is generated by government consumption, which the Office of National Statistics (ONS) attributes to the increase in vaccination volume, but this does not reflect potential economic performance. Higher volatile factors such as inventory have also boosted the data, and the key household consumption and www.xmh100.commercial investment segments are actually much weaker than in the first quarter of this year.
For these reasons, we do not think the Bank of England will draw too many conclusions from its growth performance in the quarter. Future policy direction will depend more on upcoming inflation and employment data. We expect GDP data to be even weaker in the second half of the year. The job market is under pressure, with salaried employment in eight months of the past nine months declining and investment intentions lower. Despite the trade agreement between Britain and the United States, the bigger problem for British www.xmh100.companies is the uncertainty of the global economic outlook caused by tariffs.
Daily Market Observation: The Japanese Yen becomes the US government "officially announced" that the weak dollar rivals
The Japanese Yen once soared 0.5%, while the US dollar index fell for the third consecutive trading day. The fuse www.xmh100.comes from U.S. Treasury Secretary Scott Becent, who accused the Bank of Japan of napping in the inflationary struggle and suggested a rate hike is www.xmh100.coming. The yen rose 0.5% against the US dollar at one point, causing Tokyo traders to close their positions and trade arbitrage.
Bester's remarks ignited the entire foreign exchange market. He hinted that the opening quote for the Fed's www.xmh100.comprehensive easing cycle (the first rate cut this year) would be 50 basis points. This will not only push the dollar down, but also weaken it against all G10 peers. If it is really achieved, Japanese stocks may hit a new high.
The Bank of Japan is expected to remain silent at its Sept. 19 meeting, but Becente's www.xmh100.comments have advanced expectations of interest rate hikes, with 42% expected to act in October and one-third considering January. In the forex market, the message is clear: if Washington wants a weaker dollar, the yen may be one of the biggest winners.
The above content is all about "[XM Foreign Exchange Platform]: Inflation rises again! PCE rebounds or subverts the expectation of interest rate cuts, and the Federal Reserve's policy path changes." It is carefully www.xmh100.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your transactions! Thanks for the support!
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