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The weakness of PPI paves the way for interest rate cuts! If CPI rebounds tonight, how much boost will the US dollar get?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Official Website]: PPI weakness paves the way for interest rate cuts! If CPI rebounds tonight, how much boost will the US dollar get?" Hope it will be helpful to you! The original content is as follows:
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On Wednesday, the US PPI unexpectedly cooled down sharply in August, and the US dollar index fell, but then recovered the lost ground. As of now, the US dollar price is 97.85.
1. The US PPI annual rate in August recorded 2.6%, the lowest since June. Traders have stepped up bets on the Fed's interest rate cut.
2. The judge prevented the removal of Fed Director Cook, and the Trump administration appealed quickly.
3. The Office of the Inspector General of the U.S. Department of Labor has launched a review of the Bureau of Labor Statistics, focusing on the mechanisms for PPI, CPI data collection and employment data revision.
4. Fed nominee Milan passed the Senate www.xmhouses.committee test as scheduled and is expected to be confirmed by the Senate full vote next Monday.
5. U.S. Secretary of www.xmhouses.commerce Lutnik: The United States should get a share of university patent income.
6. Trump ally and conservative internet celebrity Charlie Kirk was shot dead while giving a speech in Utah.
Summary of institutional views
ANZ: The Federal Reserve faces the risk of lagging behind the curve in terms of employment momentum
Due to the continued weakness of the labor market in recent times, we have expanded the expected reduction of the federal funds rate by 50 basis points. It is currently expected that the target range will be reduced by 125 basis points to 3.00-3.25%, and the first 25 basis points rate cut will be launched this month. We expect to followThe last four FOMC meetings will each cut interest rates by 25 basis points until the end of March 2026. Given the high inflation uncertainty and the current inflation level deviates from the (recently reinforced) 2% target, we believe that it is appropriate to have a 25 basis point decline multiple times.
We believe that after removing the tariff factors, the potential deflation trend will remain, and the tariff impact will prove temporary. Real and nominal wage growth is slowing down, long-term inflation expectations are anchored well, corporate profit margins are facing downward pressure, and domestic demand growth has also slowed down. None of these developments supports the persistence of high inflation. If it were not for the tariff factors, we believe that FOMC had already restarted its loose policy.
Labor market data has continued to deteriorate since the FOMC meeting in late July. The downward revision of non-farm employment data from May to June plus the disappointment of only 22,000 people in August, breaking the steady momentum of the labor market. The three-month average of non-agricultural employment has slowed to 29,000, far below the long-term ten-year trend value (145,000). An unknown May-June correction at the FOMC meeting in July shows that the Fed faces the risk of lagging behind the curve in terms of employment momentum.
Belenberg: The ECB is in a www.xmhouses.comfortable zone, and the suspense that the market is most concerned about is that
The ECB currently does not need to adjust its monetary policy position. Since the beginning of this year, the eurozone economy has shown resilience beyond expectations, uncertainty in trade policy has decreased, and inflation continues to hover around the 2% policy target. At the upcoming interest rate meeting on September 11, deposit rates are expected to remain unchanged at 2.0%, which is likely to be one of the most unstable meetings in the near future. The suspense that the market is most concerned about at present is: If French political turmoil causes instability in the financial market, how will the European Central Bank respond? But as usual in dealing with political issues, President Lagarde is likely to remain silent at a press conference—which is in line with his due position.
At the July meeting, Lagarde said in a press conference: "We are currently in a favorable position to stay on the wait and see and wait for the risk evolution in the www.xmhouses.coming months." This judgment has not changed significantly so far, and some positive progress during the summer further strengthens the rationality of staying still - the US-EU trade agreement reduced uncertainty, the eurozone's GDP growth in the second quarter exceeded expectations, and the unemployment rate dropped to a historical low of 6.2%. Although there will be a brief slowdown in the third quarter due to factors such as the possible decline in exports to the United States, we expect the eurozone economy to regain growth momentum by the end of the year. This is partly due to the continued stimulus effect of the current expansionary monetary policy of the ECB. Inflation rose slightly to 2.1% in August, and has remained at its 2% target or slightly lower since April. Based on this, we believe that there is no need for the ECB to take further action in the medium term. But in the long run, the rebound in inflation driven by wage growth is likely to force the central bank to gradually increase deposit interest rates from 2% to 3% from mid-2027.
Mitsubishi UF: Bank of Japan has released a signal of hikes this year, but the market is still skeptical about the rate hikes in X months
After experiencing severe fluctuations in recent days, the Japanese and American exchange rates have stabilized overnight. At the beginning of this week, affected by Prime Minister Shigeru Ishiba's resignation over the weekend, the United States and Japan once rose to a high of 148.58; but then, with reports that the Bank of Japan is still considering hikes this year, the pair fell back to a low of 146.31 yesterday.
Bank of Japan officials believe that despite the current political uncertainty, there is still a possibility of another rate hike this year as long as the economic situation meets expectations, according to people familiar with the matter. The report added that the conclusion of the U.S.-Japan trade deal eliminates a key source of uncertainty, but the Bank of Japan is likely to keep interest rates unchanged this month to continue to assess the impact of high tariffs on the economy. However, the report also pointed out that some officials even believe that hikes in rate as early as October may be appropriate. In the www.xmhouses.coming months, the Bank of Japan will closely monitor economic data and information to determine whether the economic situation is suitable for hikes.
In response, the Japanese interest rate market has increased the probability of the Bank of Japan hikes by the end of the year. Currently, the market is expected to raise interest rates by about 15 basis points by December's policy meeting, higher than the 12 basis points after Prime Minister Shigeru Ishiba resigned on Monday. Nevertheless, market participants are still skeptical of the October rate hike and have now absorbed only about 8 basis points of interest rate hike expectations.
Wells Fargo: The Fed rate cut cycle has begun, and it is expected that this round will eventually drop to X%
Summer has passed, but the Fed rate cut cycle has just begun. We expect the Federal Reserve to cut interest rates by 25 basis points each in the next three meetings, reducing the target range of the federal funds rate to 3.50%-3.75% by the end of the year. We also predict that two more 25 basis points cuts will be made in March and June next year, ultimately reducing the federal funds rate to 3.00%-3.25%.
In our opinion, the U.S. labor market is in a volatile position, which is the main reason why we adopt a more "dove" prospect for monetary policy. In August, the three-month moving average of non-farm employment growth was only 29,000, and private sector data also confirms this trend in the Bureau of Labor Statistics data. While a slowdown in labor supply growth could explain part of the slowdown, the unemployment rate hit a cyclical high of 4.3% last month, and soft data continue to show that workers' confidence in job opportunities is deteriorating.
It is undeniable that this half of inflation in the Fed's dual mission still conflicts with further interest rate cuts. Although progress on inflation's return to 2% this year has stalled, price increases since Independence Day are largely consistent with economists' expectations. Furthermore, economic theory tells us that supply-side inflation caused by tariffs should be short-lived as long as inflation expectations remain stable, while inflation expectations generally perform well in the near term.
We believe that sustained above target inflation will prevent the Fed from lowering interest rates below neutral levels for the foreseeable future. However, the federal funds rate is still 100 to 150 basis points higher than our estimated neutral level, providing short supply to the Fed to support the labor market without overly easingbetween.
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