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The US dollar index is falling continuously, the market is waiting for PCE data
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The US dollar index is falling continuously, and the market is waiting for PCE data." Hope it will be helpful to you! The original content is as follows:
On the Asian session on Friday, the U.S. dollar index hovered around 97.39, and the U.S. dollar fell sharply against the euro and pound on Thursday, falling to its lowest level in three and a half years, as traders expected the Fed rate cut to a greater extent than previously expected, triggering widespread selling of the U.S. dollar. Fed Williams presided over the meeting at the 24th Bank of International Settlements Annual Meeting, and Fed Hamake and Fed Director Lisa Cook attended the "Feder Listening" event. Inflation indicators will play an increasingly important role in the xmmarkets.cning weeks and months as policymakers and market participants are looking for signs of inflationary pressure brought by President Trump’s tariff policy. The U.S. personal consumption expenditure price index (PCE) inflation in May will be released on Friday.
Analysis of major currencies
Dollar: As of press time, the US dollar index hovered around 97.37, and the performance of the US dollar and US Treasury markets also had an impact on gold prices. The dollar fell to its lowest level since 2021 against the euro and pound, affected by expectations of interest rate cuts and rumors that Trump may nominate a new Fed chairman. The market expects the new chairman to be more dovish, weakening Powell's influence and thus pushing up expectations for interest rate cuts. Scotia Bank's foreign exchange strategist Eric Theoret pointed out that the dollar sell-off reflects market expectations for the Fed to relax its policies faster. Technically, the exchange rate has been below all key moving averages for two consecutive weeks (99.3438/100/100/101.8953/200/103.9032), showing a standard short position, and the medium- and long-term trend has confirmed to weaken. RSI14 was close to the oversold zone at 31.9112, but no divergence was made; MACD bar chart expanded to -0.1983. After the DIFF and DEA die, the opening is downward, indicating that the downward momentum is enhanced.
1. US Treasury Secretary Bescent asked Congress to remove the "899 retaliation tax clause"
The US Treasury Department announced an agreement with G7 allies, which will protect U.S. xmmarkets.cnpanies from the impact of taxes levied by some countries. In exchange, the Trump administration will remove the "899 retaliation tax clause" from the "Big and American" tax reform bill. "The global minimum tax policy under the OECD Pillar II framework will not apply to U.S. xmmarkets.cnpanies. We will be with other OECD-G20 Inclusive Framework members in the xmmarkets.cning weeks and months," Treasury Secretary Bescent said on Thursday.Cooperate and jointly implement this agreement. He added that based on this progress and consensus, I have asked the House and Senate to remove the protective clause of "899". The clause is mainly aimed at allies that implement digital service tax on U.S. technology xmmarkets.cnpanies or participate in the world's lowest tax rate mechanism. Previously, Wall Street was concerned that the policy would reduce the willingness of foreign individuals and businesses to invest in the United States.
2. The possibility of interest rate cuts in July is bleak. Several Fed officials tend to continue to wait and see.
This week, several Fed officials made it clear that it will take a few more months to determine that the price increase caused by tariffs will not continue to push up inflation. Director Christopher Waller and Vice Chairman Michelle Bowman, who is in charge of regulatory affairs, made a statement earlier. At the time of concern, they said that if inflation remains under control, they may support interest rate cuts at the July meeting. However, nearly 12 policymakers, including Chairman Powell, New York Fed President John Williams, and San Francisco Fed President Mary Daly, poured cold water on this view. In addition, three regional Fed presidents also hinted that they are not ready to cut interest rates at the next meeting. Powell testified in Congress on Tuesday that if it were not for the uncertainty of future price outlook, the Fed might have started to cut interest rates only based on the decline in inflation. But there is no need to rush to adjust interest rates at the moment.
3. Iranian Foreign Minister: Iran has no plan to restart nuclear negotiations at present
On the 26th local time, Iranian Foreign Minister Ah Ragic said that Iran has no current plan to restart the negotiations on the nuclear issue. Aragic said that some speculations about restarting the negotiations should not be taken too seriously. He clearly stated that no agreement, arrangement or dialogue has been reached to initiate new negotiations, and Iran has not yet formulated any plan to initiate the negotiations. Aragic said that according to the established policy, if Israel stops the attacks unconditionally, Iran will terminate its response actions. Because Israel is the initiator of the conflict, and Iran only defends itself. Therefore, once Israel stops the attacks, Iran does not have to continue its defense operations. Aragic stressed that Iran’s position is not to accept the ceasefire agreement, but if Israel stops the attacks, Iran will no longer continue its military operations. Aragic said that given Israel’s consistent record of conduct in the past, After announcing a ceasefire, it often unilaterally violates the agreement and tries to prevent the other party from taking response measures. But Iran is different from Lebanon. If the ceasefire agreement is violated, Iran will give a decisive and immediate response.
4. The EU summit did not reach an agreement on a new round of sanctions against Russia
On June 26 local time, EU leaders issued a statement on the conflict between Russia and Ukraine. Although the statement emphasized that the EU stated that it would increase pressure and introduce a new round of sanctions if necessary, including limiting Russia's energy income, it did not launch a new round of sanctions against Russia as expected. Documents released by the European Council show that 26 heads of state or government of the EU expressed clear support for this. The statement also said that the EU called on member states to strengthen its response to Ukraine.Supply of Crane air defense systems, anti-UAV equipment and large-caliber ammunition. The EU also supports accelerating the development of Ukraine's defense industry and promoting its integration with the European defense industry. The EU announced that it will provide Ukraine with 30.6 billion euros in financial aid in 2025, of which 3.5 billion has been distributed through the "Ukrainian Aid Tool" and 7 billion interest from frozen Russian assets.
5. White House: Trump will not make a decision on the candidate for the next Fed Chairman in the near future
The White House said that Trump will not make a decision on the candidate for the successor of Fed Chairman Powell in the near future. Earlier, the Wall Street Journal reported that Trump may choose Powell's successor as early as this summer. White House officials said Thursday that a decision will not be made for the time being, although the president has the right to change his mind at any time. The official said Trump has several outstanding candidates to offer. Powell's term as chairman will not end until May 2026, so it is rare to select successors in advance.
Institutional View
1. Yixin Bank: The ECB is expected to xmmarkets.cnplete the interest rate cut cycle in September
Andreas Rees of the Yixin Bank Investment Research Institute said at a webinar that the ECB is expected to cut interest rates again in the current cycle. According to economists in Yuxin Bank, a 25 basis point cut in September will bring the deposit rate to 1.75%, "basically (the rate cut) is over." The money market currently believes that the next rate cut is more likely to be in October. Rees said that European economic growth is expected to be "quite weak" but will not slow down significantly, and inflation may fluctuate horizontally, hovering around 2%.
2. Institutions: The strengthening of the euro may prompt the ECB to further cut interest rates
Jane Fowler, a foreign exchange strategist at Rabobank, pointed out in the report that the rise in the euro exchange rate may prompt the ECB to further cut interest rates. Although the ECB has suggested its rate cut cycle is about to end, further sharp rises in the euro may prompt policy makers to tend to implement more rate cuts. The strengthening of the euro also poses a headwind for European xmmarkets.cnpanies, which are facing pressure from "default-related uncertainty." Rabobank currently expects the euro to rise to 1.20 against the U.S. dollar in 12 months, after the euro is expected to reach this level within 18 months.
3. Institutions: The dollar may continue to be under pressure before the end of the reciprocal tariff moratorium
On Thursday, the dollar fell to a multi-year low against the euro and the Swiss franc, as concerns about the future independence of the Federal Reserve shook confidence in the prudent nature of the U.S. monetary policy. From a market perspective, this will not only clearly weaken the Fed's credibility and independence, but also pose a risk to the U.S. interest rate outlook, Nick Rees, head of macroeconomic research at MonexEurope. These concerns put pressure on the dollar today. The pressure on the US dollar from Trump’s team’s remarks may intensify before the “peer-to-peer tariffs” moratorium expires on July 9.
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