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Will Powell unleash the beautiful dove sound? U.S. government shutdown continues
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Hello everyone, today XM Forex will bring you "[XM Group]: Will Powell release a wonderful dove voice? The US government shutdown continues." Hope this helps you! The original content is as follows:
Despite soaring CPI, Bank of Canada will cut interest rates again
It was the Bank of Canada that started the central bank bonanza on Wednesday. The Bank of Canada resumed its rate-cutting cycle in September after a six-month pause and is expected to ease again in October. Governor Steve McCallum recently said policymakers would take risks more seriously in their next decision.
In addition, relations between Canada and the United States have deteriorated again after President Trump abruptly terminated trade negotiations over anti-tariff TV ads, making an agreement once again difficult to reach.
An October rate cut then seemed a foregone conclusion, although investors have scaled back their bets for the rest of the year and into 2026 after Canada's CPI accelerated stronger than expected in September.
Nonetheless, USD/CAD’s shallow uptrend from April is safe for now, and it may be some time before the Bank of Canada rules out further rate cuts.
Fed meets amid ongoing shutdown
The U.S. government is not far away from ending the shutdown that has plagued the country since October 1 and is about to enter its fourth week. Democrats are still refusing to go along with Republicans' stopgap funding bill as they seek assurances from Republicans that a vote on extending health care subsidies set to expire at the end of the year is imminent.
However, Donald Trump has steadfastly insisted that there will be no negotiations with Democrats during the shutdown. This intransigence on both sides raises the possibility that a prolonged shutdown will have a more significant impact on the economy — and the Fed will likely take notice.
If by Wednesday, when the Fed closesDownside risks to the economy may become more prominent in the minds of policymakers as Republican and Democratic senators appear no closer to an agreement on a financing bill as they end their two-day monetary policy meeting.
Will the Fed become more dovish?
As early as September, members of the Federal Open Market www.xmh100.committee had scheduled two more interest rate cuts in 2025 and one more rate cut in 2026. Judging from the latest www.xmh100.comments from officials, including Chairman Powell, their views do not appear to have changed much. While the Fed is clearly concerned about the labor market and is watching closely, it views the rate cuts as more insurance against an unexpected spike in unemployment than a necessary policy step.
On the other hand, the Fed remains wary of sticky price pressures and has indicated that it will not tolerate above-target inflation indefinitely. Caution about the pace of rate cuts in 2026 and 2027 stems from uncertainty about the full impact of Trump’s tariffs on domestic prices. Until the Fed has a clearer picture of inflation and the job market, Powell is unlikely to significantly change his language on the path of future policy when he announces a quarter-point rate cut.
So given the latest flare-up in U.S.-China trade relations and the ongoing shutdown, Powell & Co. may strike a more dovish tone on Wednesday, but probably not by much. Even dovish members like Waller are reluctant to pre-commit to a series of rate cuts. If the Fed expresses doubt about the path of market interest rates, which would mean another 100 basis points of rate cuts after October, it would increase the risk of disappointment among traders.
Some U.S. data is still brewing
As the government shutdown continues, more economic data appears to be on the back burner next week, including Monday's durable goods orders, Thursday's third-quarter GDP estimate and Friday's personal income and spending report, which contains consumer spending data and the core PCE price index.
However, investors and policymakers will have some data, mainly business surveys such as Tuesday's consumer confidence index and Friday's Chicago Purchasing Managers' Index.
If the upcoming investigation raises any concerns about the economy, it would give investors more reason to question the Fed's cautious stance. Alternatively, a www.xmh100.combination of solid indicators and a less dovish Fed meeting could give the dollar significant upside.
The victory of the high market poses a dilemma for the Bank of Japan
The Bank of Japan will announce its latest policy decision on Thursday, less than a day before the Federal Reserve meeting. Recent www.xmh100.comments from Bank of Japan policymakers have been somewhat hawkish, indicating that they are determined to raise interest rates at the October meeting. However, the possibility of a 25 basis point rate hike has declined after newly elected Liberal Democratic Party leader Sanae Takaichi was confirmed as prime minister.
Far from downplaying her Abenomics-inspired policies of massive government spending and easy monetary policy, Takaichi doubled down on the need for a new fiscal package to help households struggling with rising prices and asked the Bank of Japan to work with the government toeconomic policies remain consistent.
That puts the Bank of Japan in a difficult position over how soon it should raise interest rates again. Although inflation has been falling over the past few months, it remains well above the central bank's 2% target. The bank has also recently become more optimistic about Japan's economic prospects and is expected to upgrade its growth forecast as trade tensions with the United States have eased.
The question now is, how urgent is it to raise interest rates as soon as possible? Takaichi's appointment as prime minister may have removed the need for immediate action, with investors pricing in just a 20% chance of a rate hike in October.
If the Bank of Japan keeps interest rates on hold as expected and merely hints that it is getting closer to a rate hike without providing any clear signals, the yen will not react much and traders will turn their attention to Tokyo Consumer Price Index data due on Friday.
European Central Bank meeting may not be an event
The European Central Bank will also meet on Thursday to set policy, but there are unlikely to be any fireworks. The bank has been on hold since July and there appears to be a strong consensus within the Governing Council to keep interest rates at 2.0% for the foreseeable future.
With inflation hovering near the European Central Bank's 2% target and the euro zone economy showing surprising resilience in the face of high U.S. tariffs, policymakers prefer to reserve some firepower for emergencies, although some officials acknowledge that the next move is more likely to be lower than higher.
For the euro, however, this can only be good news for bulls, especially as the Fed has only recently resumed its easing cycle. Preliminary CPI estimates for October released on Friday are also not expected to show any major moves, although these data will be closely watched, and the bigger risk to the euro will be the preliminary third-quarter GDP data released on Thursday.
In the three months to September, the euro zone economy is expected to grow by only 0.1% month-on-month. The weak data could rekindle expectations of further interest rate cuts from the European Central Bank, weighing on the euro.
RBA eyes CPI data before decision
The Reserve Bank of Australia’s next policy meeting is just over a week away, so the timing of Wednesday’s CPI report couldn’t be ideal.
The report will include data for the third quarter and September, which could affect the November vote as pricing for a 25 basis point rate cut is less than 70%. Australia's latest economic data has not gone to the RBA's liking, as the unemployment rate jumped to 4.5% in September, while monthly inflation has edged up to the upper end of the 3.0% target.
However, in quarterly data, the underlying measure of CPI has been falling, and if this trend continues in the third quarter, the RBA will almost certainly cut the cash rate in November. However, that's not to say there won't be some upside risk to the Australian dollar if any CPI data www.xmh100.comes in higher than expected.
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