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UK CPI in September fell short of expectations! Pound and US continue to fall as expectations for rate cut rise
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market www.xmh100.commentary]: British CPI in September was lower than expected! Interest rate cut expectations are rising, and the pound and the United States continue to fall." Hope this helps you! The original content is as follows:
Asian market conditions
On Wednesday, the U.S. dollar index paused after rising for three consecutive days. It once exceeded 99 during the session. As of now, the U.S. dollar is quoted at 98.98.

U.S. Treasury Secretary Bessent: Rising gold prices will help us.
The "shutdown" continues, and the U.S. Senate rejects the temporary appropriation bill for the 12th time.
Tariffs - ① It is reported that India and the United States are about to reach a trade agreement and reduce tariffs on India to 15%-16%. ②The Trump administration is preparing to launch a drug investigation to pave the way for new tariffs.
The situation in Russia and Ukraine-①The EU approved the 19th round of sanctions against Russia, including a ban on liquefied natural gas imports. ② The US media claimed that the United States allowed Ukraine to use long-range missiles against Russia. Trump responded: Fake news! ③ Bessant said that it would "significantly increase" sanctions against Russia, and then the US Treasury Department announced sanctions on two major Russian oil www.xmh100.companies. ④ Trump said he was canceling his meeting with Putin in Budapest because the meeting would not make any progress.
Summary of institutional views
Analyst Fawad Razaqzada: The euro's consolidation has disintegrated the bullish momentum. If the Federal Reserve confirms next week, it is expected to get a breather.
The long-term sideways consolidation of the euro against the US dollar in the past few months has www.xmh100.completely disintegrated the previous bullish momentum, but so far there has been no more substantial downward break, indicating that it is not a seller's market. this meansBefore the new trend is established, it is more appropriate to adopt a range trading strategy. Overall, the long-term fundamental trend remains bullish as the pattern of higher highs and higher lows remains intact and prices remain firmly above the 200-day moving average.
Market sentiment regarding the U.S. dollar appears to be cooling. The U.S. government shutdown has reached the second longest record in history, and the release of key data has been delayed, causing the market to fly blindly. Without the latest labor market data, investors have little reason to scale back their expectations for two rate cuts by the Federal Reserve by the end of the year, and possibly three by next March. It is difficult to take a purely bullish stance on the US dollar in this environment. Any escalation in trade tensions could add to downward pressure. The longer this issue persists, the greater the risk of a USD pullback - which could help EURUSD recover modestly in the near term.
Although weak data from the euro zone continues to constrain the euro, a weaker dollar provides a buffer. This makes the Eurozone PMI data released on Friday the focus of market attention. But the next major catalysts for the euro could www.xmh100.come from Friday's U.S. CPI data and next week's Federal Reserve meeting. If the Fed confirms another rate cut, it could signal a more dovish stance by the Fed, further limiting the dollar's upside. In this case, the euro's 1.16 level may be stable, creating conditions for a short-term rise.
IGM Group: Japan’s new government’s fiscal thinking has changed. Will the Bank of Japan’s interest rate hike path change as a result?
The new economic plan of Japan’s new Prime Minister Takaichi Sanae has put the short-term trend of the US dollar against the yen into a delicate balance. The package focuses on targeted support rather than large-scale spending, showing a more prudent fiscal approach, which limits immediate inflationary pressures. Coupled with Takaichi Sanae's emphasis on "responsible" expansion and clear concerns about the weakness of the yen, it formed a tone of mild support for the yen. If the market believes that the possibility of aggressive deficit financing by the Bank of Japan is reduced, Japanese yields will remain stable and the central bank can maintain its gradual tightening path, prompting USD/JPY to enter consolidation or moderate decline.
However, there are still uncertainties in the scale of the project and the financing methods. If subsequent details show signs of large-scale bond issuance or fiscal expansion, it may push the U.S. and Japan to rise again. On the contrary, if the fiscal prudence stance is confirmed and consistent with the central bank's policy normalization path, speculative yen short positions may be reduced, promoting a correction in the United States and Japan.
Informed sources revealed that Bank of Japan officials believe there is no urgent need to raise interest rates at the October meeting, even though the economy is moving towards the inflation target. They expect that conditions for raising interest rates may be mature in December, when the economy and inflation trends will be further in line with forecasts. The overnight index swap market is currently pricing in a Bank of Japan interest rate hike in October at just 13%.
Goldman Sachs economists maintained their baseline forecast that the Bank of Japan will raise interest rates in January 2026, but acknowledged that there are moderate risks in early action in December. The analysis team pointed out that the formation of a new government by Sanae Takaichi, a supporter of Abenomics, has added variables to the outlook, but it still has cautious confidence in the central bank's ability and independence to maintain the path of raising interest rates. Since Abe’s 2012Since the implementation of economic policy, Japan's economic and inflationary conditions have significantly strengthened, reducing its reliance on large-scale monetary easing.
Societe Generale: The probability of an interest rate cut in the UK before Christmas has risen to 70%, and the unexpected slowdown in inflation has opened a window for monetary policy easing
As UK inflation data in September were lower than expected, market expectations for the Bank of England to cut interest rates before Christmas continue to rise. The Bank of England had previously predicted that inflation would hit a peak of 4.0% in the third quarter, but overall inflation stagnated at 3.8% last month, and core inflation slowed to 3.5%. Before the British interest rate decision on December 18, two CPI reports will be released one after another. Our economists expect CPI to fall further to 3.5% in November and fall back below 3% in January next year.
Today’s data further boosted the rise in British government bonds, which outperformed U.S. Treasuries and German Bunds in October. Finance Minister Reeves said yesterday that he would curb inflation and ease cost-of-living pressures through a series of measures in the budget, thereby creating space for the Bank of England to further cut interest rates. After this, the market's overnight index swap (OIS) pricing for the December MPC meeting showed -17 basis points, which means that the implied probability of a rate cut before Christmas is approaching 70%.
www.xmh100.commerzbank: The impact of U.S. inflation data on the U.S. dollar is unlikely to be lasting
www.xmh100.commerzbank analyst Antje Praefcke pointed out that the U.S. inflation data released on Friday may not have a lasting impact on the U.S. dollar. She said the delayed data may reveal whether tariffs have pushed up inflation, but "are unlikely to change the tone of the Fed's decision-making at next week's meeting, as most Fed members believe any impact of tariffs on inflation will be temporary." Praefcke believes that even if the inflation data exceeds expectations, the Federal Reserve may still implement an interest rate cut on October 29, because the Federal Reserve is currently paying more attention to the employment situation, and the recent deterioration of the labor market is providing a basis for interest rate cuts.
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