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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: Non-agricultural 'guillotine' hit the US dollar hard! If it is weaker in August, the pressure on the Federal Reserve to cut interest rates will surge." Hope it will be helpful to you! The original content is as follows:
Dollar speculative longs increased their holdings for five consecutive weeks to drive a decrease in vifu.net short positions, helping the US dollar rebound last week, but the data has a weekly lag. The poor performance of non-agricultural funds may cause the profit-taking of speculative funds to intensify the pressure on the dollar selling, and non-US currencies and gold may benefit. As of now, the US dollar is priced at 98.71.
Summary of institutional views
1. Tariffs
① US Trade Representative: The new round of tariffs has been "basically determined" and will not be adjusted in the current negotiations.
②Canadian Trade Minister: Prime Minister Carney and Trump are expected to hold talks in the next few days. A deal to reduce some tariffs is an "option".
③ Switzerland is willing to make concessions in its trade proposal to reduce tariffs by 39%. ④The entry into force of Trump’s reciprocal tariffs will be delayed by one week to August 7.
2. A list of US economic data
① The United States recorded a non-farm increase of 73,000 in July, far lower than the expected 110,000; it significantly lowered 258,000 jobs in the first two months, and traders fully priced the United Nations rate cut twice before the end of the year.
②The US ISM manufacturing PMI unexpectedly fell to 48 in July, lower than the expected 49.5, the lowest since October 2024.
③The University of Michigan Consumer Confidence Index in July was a five-month high.
3. TrumpDynamic
① Non-agricultural employment data were manipulated to embarrass me, and the team has instructed to fire the Director of the Labor Bureau immediately.
② The Russian-Ukrainian conflict should not have occurred, and two nuclear submarines have been ordered to be deployed in the corresponding areas in response to Medvedev's remarks.
③If Powell does not cut interest rates, the board should take over control.
④ First threatened to fire Powell without hesitation, and later said that if he fired Powell, it would disrupt the market, and Powell is likely to remain as chairman of the Federal Reserve.
4. Federal Reserve
① Williams: The focus is on the abnormally sharp drop in non-agricultural data in May and June, and it is open to interest rate cuts in September.
① Director Kugler will resign this week, and traders are stepping up bets on the Fed's interest rate cut in September.
②Federal governors Waller and Bowman issued a statement to respond to why they opposed the Fed's non-rate cuts, both mentioned that the labor market was weak.
③Hamak: The employment report is "disappointing", but it does not mean that interest rates should be cut last week; the labor market is still in a balanced state.
④Bostic: The inflation risk is much greater than the employment risk, and interest rate cuts are still expected this year.
OPEC+ agreed to increase production by 548,000 barrels per day in September, and withdraw from this round of production cuts one year ahead of schedule. According to reports, the meeting may consider increasing production next month.
US media: Ignoring Trump's threat of punishment, Indian officials said they will continue to buy Russian oil.
JPMorgan Chase North American Economic Research Team warned in its report that the U.S. government's firing of the Bureau of Labor Statistics (BLS) Director McKentavver may undermine the integrity of economic data, thereby endangering monetary policy formulation and overall financial stability. If the data is manipulated or deviates from reality, policy makers will "like flying blindly." The report said. JPMorgan Chase also refuted the idea that private sector data can replace official statistics. Although alternative "big data" indicators have been emerging in recent years, these indicators are often benchmarked on official data and lack national representation. Even small changes in data provider market share can distort macroeconomic signals, which is a problem federal data seeks to avoid. In a period of high policy sensitivity, maintaining the independence and integrity of institutions such as BLS is crucial to ensuring sound economic decision-making
After last week's European Central Bank meeting and this week's trade agreement headlines, early August marked the official beginning of the European summer downturn. The euro zone data schedule is very light next week, with key data including the final PMI and euro zone producer price index released on Tuesday, as well as retail sales data on Wednesday – unlikely to have a significant impact on the market.
As the financial report season progresses, vifu.netpany vifu.netments on the trade war may affect stock market indexes and further affect EuropeYuan. However, the euro may still be most sensitive to subsequent trade-related news, especially when the basis of the just-concluded 15% tariff agreement between the United States and Europe seems to be unstable.
We previously pointed out that the trade agreement could trigger a short-term rebound in the US dollar. Nevertheless, as the Federal Reserve resumes interest rate cuts and U.S. macro data further weakens in the second half of the year, we still expect the dollar to continue to weaken for the rest of the year. Against this backdrop, we tend to build long positions under 1.15 against the euro and the dollar, with the goal of rising to 1.20 over the year.
We expect the Bank of England to cut bank interest rates by 25 basis points to 4% in August meeting. Weak potential economic growth, loose labor markets and lower wage growth than Bank of England expected, all support rate cuts. However, there are differences within the Bank of England about the rate of cuts. We expect BoE chief economist Peel and BoE monetary policy vifu.netmittee member Mann will vote for maintaining interest rates unchanged, resulting in a 7:2 voting model for the conference. However, there is no resistance in the market's expectations for a rate cut in August. The forecast for the meeting may be the same as in May, suggesting that the current market pricing of bank interest rates is the benchmark scenario for the Bank of England.
In addition, we expect the Bank of England to maintain forward-looking guidance of "gradual and cautious" and we interpret "gradual" as a quarterly rate cut. Given the dual risks of inflation, the minutes will reiterate that "monetary policy does not operate on a preset path", and if the data is disappointing, the minutes will provide the option of not cutting interest rates on a quarterly basis. Finally, the claim that “monetary policy needs to remain restrictive for a long enough period of time” may remain unchanged as bank interest rates remain higher than neutral rates. Therefore, we maintain the Bank of England will cut interest rates in quarterly units until the bank rate reaches 3%. If the labor market downturn intensifies or partial upward risk of inflation fades, risks tend to adopt more radical easing policies.
We expect the Bank of England to cut interest rates by 25 basis points, in line with market expectations. Market focus will focus on the Monetary Policy Report and the latest forecasts of the central bank. The recent inflation data continues to be higher than expected, which may lead to the central bank's updating inflation forecasts. We expect two more interest rate cuts by February next year, but given the continued stubborn inflation pressure, it is not ruled out that the central bank may suspend the interest rate cut cycle in advance.
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