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Hello everyone, today XM Foreign Exchange will bring you "[XM official website]: US bond auctions are cold! Safe-haven funds may abandon the US dollar and switch to Europe and Japan, and the Fed's dovish balance has aggravated the decline of the US dollar." Hope it will be helpful to you! The original content is as follows:
Draged by the hope of interest rate cuts boosted by Fed officials' speeches, the US dollar index fell. As of now, the US dollar is priced at 98.11.
1. Tariffs
① The President of the Swiss Federal Republic of China left the United States and failed to make progress on the trade agreement.
②Trump said that he would impose about 100% tariffs on chips and semiconductors, and that factory building in the United States can be exempted. He met with Huang Renxun before announcing the tariffs.
③Trump announced an increase of 25% tariff on Indian goods, and the total tax rate rose to 50%.
④Trump: If other countries import Russian crude oil, they may be subject to a 25% tariff.
⑤ White House officials said Apple will basically not be affected by the US tariffs on India, and Apple increased its US investment vifu.netmitment by $100 billion.
⑥ Is the additional 15% or is it a unified 15% tariff? Japan questioned that the US tariff announcement is inconsistent with the agreement.
2. US-Russia talks
① Trump said the US-Russia talks are fruitful and there is a high possibility of holding a summit with Zelensky and Putin. News says the leaders of the tripartite are expected to hold face-to-face talks as early as next week.
②Rubio: The decision to impose secondary sanctions on Russia will be made within the next 24 to 36 hours. Russian and American leaders may talk within a few days.
3. Federal Reserve News:
① Kashkali: It may be suitable for interest rate cuts in the short term, and the two interest rate cuts this year are reasonable.
②Trump: The new Fed director may be temporary and will announce his appointment within 2-3 days.
③Cook said that employment data indicates an economic "turning point" and implies that interest rate cuts may be cut in the near future.
Trump met with the CEO of Bank of America and Citigroup at the White House and discussed the "two-household" related plans.
Deutsche Bank's chief economist O'Donaho said that the RBA will lower the official cash rate by 25 basis points next week to 3.60%, and the Policy vifu.netmittee may pass a 9-0 vote. He added that policy meetings are unlikely to lead to substantial changes in inflation or labor market forecasts, but are likely to make a more optimistic assessment of near-term consumption. He said forward-looking guidance that could lead to a possible further rate cut in September may be the most noteworthy aspect of the meeting.
The US CPI data in July will further show signs that tariff hikes push up prices. We estimate the core CPI monthly rate to rise by 0.3% in July. This will be the biggest gain in six months and push the gains up to 3.0% a year ago as the strengthening of vifu.netmodity inflation is no longer offset by weakness in the service sector. The overall CPI rate is expected to rise moderately by 0.2% in July due to a decline in gasoline prices and a slight decline in food inflation. If this forecast vifu.netes true, the overall CPI gains in the same period last year will remain stable at 2.7% — slightly higher than in the spring but lower than the beginning of the year.
The price adjustment process is still in its early stages, and it is not clear how the raised import tax will eventually be distributed among end consumers, domestic sellers and foreign exporters. Meanwhile, growing consumer fatigue is making overall price increases more difficult. We continue to expect inflation to rebound in the second half of the year, but not a significant increase, and the core CPI and core PCE deflators will rebound to around 3% in the fourth quarter.
The second-quarter GDP data released last week showed that domestic demand for households in the United States slowed significantly in the first half of 2025, especially in areas that are sensitive to interest rates such as durable goods and residential investment. Both the FOMC statement and Chairman Powell acknowledged the weak trend at a post-conference press conference. And at the FOMC meeting in June, economic activities were also described as "stable". By observing the recent trend of "super core inflation", it can further demonstrate the economic slowdown: its three-month and six-month moving average annualized and year-on-year growth rates have both approached or lower than the long-term trend level, a significant decline from two years ago. In addition,The latest release of the New Tenant Rent Index (CPI-NTR) and the All-Tenant Return Rent Index (CPI-ATRR) by the Bureau of Labor Statistics show that the growth rate of owners' equivalent rent and major residence rental indicators will slow down significantly in the second half of the year.
When Powell talked about the vifu.netposition of core inflation at the press conference, he specifically mentioned the recent trends in the core service industry. He pointed out that although the core CPI year-on-year inflation continues to be above the target level, the contribution of inflation in the service industry has decreased, and the rise in vifu.netmodity price inflation partially reflects the impact of tariffs. He insisted that the labor market was "stable". In response to questions about the substantive situation of the labor market, he only used the low range of unemployment in the past year, which was stable in the 4.0%-4.2% range in the past year. He acknowledged that labor demand has cooled down, but emphasized that labor supply has improved simultaneously, forming a "overall healthy balance."
This logic is worrying, as many labor indicators show weak markets. The July non-farm employment report was far inferior to expectations, and the data in the first two months was significantly revised down, further confirming the fragility of the labor market. Although Powell did not send out recent easing signals, he left room for a rate cut in September, noting that "there will be two more rounds of employment and inflation data before the September meeting." But weak July non-farm data may make him more cautious — or vice versa, as unemployment rates have not fluctuated significantly. They expect FOMC to cut interest rates in September as economic activity and employment growth cooled down and inflation slowed down.
We have been optimistic about the pound for most of this year, but we are also aware of the fatal weakness of the fragile fiscal situation in the UK, which has appeared in the market many times this year. However, we are increasingly confused that the market is concocting a narrative to cater to the bearish pound view. We think this pessimism is overly dependent on politics and social media more than on the macroeconomic factors that are really important.
So, the sentiment of shorting pounds and bearishing British gold-edged bonds (rather than holding positions) has always been the market's default position. If it weren't for a key oversight: the market did not reflect any particular risk premium, we might have more agreed with the market's bearish pound. By shorting the euro against the pound, we continue to be optimistic about the pound, but if the "Achilles heel" of fiscal policy becomes a unique UK rather than a global issue, it will become the biggest problem for the pound.
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