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market analysis
Trump escalates pressure on the Fed, the Fed is in trouble
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: Trump increases pressure on the Fed, and the Fed is in trouble." Hope it will be helpful to you! The original content is as follows:
In the July U.S. inflation data, the overall CPI meets expectations, and the core CPI is slightly higher than expected, but the market believes that this data supports the Federal Reserve to adopt a looser policy. On August 12, Wall Street stock index closed significantly, reflecting the rising optimism among investors about the economic outlook and interest rate outlook. The dollar weakened against major currencies, while U.S. Treasury yields fell. Federal Funds Futures almost www.xmh100.completely digested the expectation of a 25 basis point rate cut in September, and the market also increased its bet on further easing by the end of the year.
The Fed's dual mission is further shifting to prioritizing full employment, and more and more members of the Federal Open Market www.xmh100.committee hold this position. The Jackson Hall workshop, to be held next weekend, will provide Fed Chairman Jerome Powell with an opportunity to adjust the policy narrative. Historically, this central bank governor seminar held in the Rockies often marked a turning point in U.S. monetary policy.
Consumer price growth slowed down
In July 2025, the overall CPI rose by 0.2% month-on-month, while in June it was 0.3%, with a year-on-year increase of 2.7%, in line with expectations. Core inflation rose slightly to 0.3% month-on-month and 3.1% year-on-year, followed by 0.2% and 2.9% in June, respectively, with annual data slightly exceeding expectations.
Price segmentation—Energy prices fell, food prices remained flat
Energy prices fell 1.1% month-on-month, and food prices remained flat. The price growth rate of core www.xmh100.commodities (excluding cars) slowed down from 0.55% in June to 0.2% month-on-month. Prices of furniture (0.9%), used cars (0.5%), sports goods (0.4%) and clothing (0.1%) rose. HomeElectrical appliance prices fell unexpectedly by 0.9%.
Seasonal increase in the service sector
Air ticket prices rose 4% month-on-month, and medical service costs rose 0.7%, mainly due to dental services. Housing costs only rose slightly by 0.2%.
Tariffs did not trigger inflationary pressure
After President Trump implemented tariff measures, there was no sign of rising inflationary pressure, which showed that businesses were absorbing higher costs through their own profits rather than passing them on to consumers. This is also supported by the latest National Independent Enterprises (NFIB) survey, which shows that the proportion of small businesses planning to increase prices in the next three months has dropped from 32% to 28%, indicating demand-side restrictions.
Inflation and Fed Policy Outlook
Analysts believe that the risk of inflation exceeding 4% this fall is small, and the possibility of inflation falling below 2% by the end of 2026 is increasing. These data strengthen market expectations that the Federal Reserve cut interest rates by 25 basis points in September and another interest rate cut in December. Currently, federal funds futures show that the Federal Open Market www.xmh100.committee meeting cut interest rates by 26 basis points on September 17, and a total of 63 basis points by the end of the year.
Trump increases pressure on Powell
U.S. President Trump has stepped up calling for a quick rate cut, even suggesting a possible prosecution of Fed Chairman Jerome Powell, accusing him of incompetence in overseeing the renovation of the Fed Building.
Remarks by members of the Federal Open Market www.xmh100.committee
Thomas Barkin pointed out that the risk balance between labor market and inflation is still unclear, and the Federal Reserve is fully prepared and will respond appropriately. Stephen Milan, the new board director appointed by Trump, said there was no evidence of inflation triggered by tariffs, adding that rent increases were partly related to illegal immigration. Jeff Schmid believes that although economic growth remains solid, inflation is still too high and a moderate tightening stance is needed. But he added that if demand diminishes significantly, he would be ready to change his point of view.
What is the next step for the US dollar?
In the week ending August 5, net short positions in the U.S. dollar fell sharply by $4.3 billion—the fourth consecutive week of decline. The current net short position is $7 billion, down from the local peak of $18.6 billion in early July.
It is worth noting that these data are lagging indicators and have not yet reflected the latest trends in the foreign exchange market. The closing of short positions can be seen in the euro-dollar correction in July, but the latest disappointing non-farm employment data has once again triggered selling pressure on the dollar. The upward trend of the pair is still technically intact, and the August inflation data will only further enhance its chances of gains. The next upside target for the euro against the dollar is 1.18, and breaking through this level will open the way toward 1.20–1.23.
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