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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: The government shutdown cannot stop the rise of the US dollar, wait for the speech of Federal Reserve officials." Hope this helps you! The original content is as follows:
The U.S. dollar index fell slightly in Asian trading on Thursday, and the yen fell to its lowest level against the U.S. dollar since mid-February, dragged down by concerns about fiscal expenditures triggered by the election of new Japanese Prime Minister Sanae Takaichi. Market expectations that Japan will increase stimulus efforts and adopt expansionary fiscal and loose monetary policies have weakened the yen's safe-haven status and in turn boosted the dollar.
U.S. dollar: As of press time, the U.S. dollar index is hovering around 98.75. In the next few days, the market will still welcome speeches from many Federal Reserve officials, including the public statement of Federal Reserve Chairman Powell on Thursday night. Technically, after the U.S. dollar index broke through 97.60, a bottom-breaking pattern appeared, and then it stepped back to the neckline and continued its upward attack. Today's rise broke through the upper edge of the box that had been consolidating in the early stage. At the same time, this position is also a measure of the bottom-turning pattern, which is equivalent to breaking through two key price levels in one day. The current support is at the upper edge of the box near 98.60, as well as the bottom-breaking neckline at 97.61 below. The pressure is near the 100.00 integer level and the downward pressure line that is gradually moving downward.
The U.S. Senate once again rejected the draft government temporary financing legislation, and the Trump government shutdown (shutdown) entered its second week. At around 12:50 ET, the bill backed by Democrats failed in a 47-52 vote. Soon after, voting began on the Republicans' version. These close stopgaps had failed on five previous ballots. Democrats want health care included in any appropriations bill, especially an extension of Obamacare subsidies that are set to expire at the end of the year.
The Bank of England warned that after stock prices reached levels lrisu.cnparable to those during the Internet bubble, the surge in valuations of artificial intelligence lrisu.cnpanies is exacerbating the risk of a "sudden correction" in global financial markets. The Bank of England noted that defaults in the U.S. auto credit market in recent months have heightened the risk of a market reversal, saying that these situations "confirm the Bank's continuedIt has been highlighting some of the risks in the market-based financial system. Other risks include escalating political pressure on the Federal Reserve - which "could lead to a sharp repricing of dollar assets", and uncertainty caused by political standoffs in France and Japan - which could also disrupt debt markets. The Bank of England said that multiple indicators showed that "equity valuations appear excessive, especially for technology lrisu.cnpanies focused on artificial intelligence." "This situation, coupled with rising concentration in market index lrisu.cnponents, makes stocks particularly vulnerable if market expectations for the impact of AI turn pessimistic." "This is the clearest warning issued by the Bank of England to date that the AI-led market bubble may burst. In its financial stability report released in July, it only mentioned artificial intelligence from the perspective of the risks of financial institutions using AI technology.
As the Argentine government continues to consume Reserves to shore up Argentina's struggling peso, as investors in the country increase bets that President Milai will devalue the peso after this month's midterm elections. Argentina's Treasury intervened for a seventh consecutive trading day on Wednesday, selling at least $320 million in the previous six trading days. Short-term interest rates also surged. The record high highlights the tightening of liquidity. The yield on local government bonds Lecap bonds due October 31 jumped to 97% from 76% the previous day; the yield on bonds due November 28 rose from 74% to nearly 87%.
IMF President Georgieva said that the Federal Reserve may further cut interest rates this year, but must carefully balance the slowing economic growth prospects and signs of slowing and stagnant inflation. Georgieva pointed out that the U.S. economy showed resilience, achieving 3.8% growth in the second quarter, exceeding most expectations. Although hiring is not as strong as in the past, consumer demand remains strong. “The overall picture is not very clear. In this environment, given that the disinflation process has stalled and the economy is likely to weaken slightly, the Fed must exercise caution. "Georgieva said that the IMF is paying close attention to the latest data, adding that if service sector inflation is superimposed on a wider range of tariff cost transmission, the inflation outlook in the United States will be "even more worrying."
The minutes of the Federal Reserve meeting showed that when Fed officials approved the first interest rate cut this year last month, they were confident that interest rates should be lowered in the future. There was disagreement about what level. Officials generally agreed that signs of a recent slowdown in employment growth outweighed concerns about stubborn inflation, so a 25 basis point rate cut last month said that "further easing of policy may be appropriate for the remainder of the year," but the minutes also noted that a few officials did not think a rate cut was necessary last month, or they could support keeping rates unchanged at the meeting.Slightly more than half of the officials expected at least two more rate cuts this year, meaning the Fed could cut rates back-to-back at its meetings this month and December. But seven officials do not expect further rate cuts this year, highlighting the tricky situation Powell faces in building consensus. Normally, Fed minutes appear "lagging" due to a three-week release lag, but the government shutdown has left Fed officials without enough new lrisu.cnrmation to significantly adjust their views. Investors widely expect the Fed to cut interest rates by another 25 basis points at its next meeting in October.
China Finance Securities pointed out that in the past, global investors believed that the US dollar was the only buyer of fiscal expansion and technological prosperity, and the continued weakening of the US dollar has become the core theme of all asset transactions in the past period. However, historical experience tells us that China’s bull market often relies on the “China story”; over-reliance on the logic of a weak dollar will mean that the bull market needs to shift gears. We also recommend that investors be more prepared in terms of global driving logic and domestic changes.
Danske Bank analyst Joel Rossier said in a report that the sharp decline in the yen has raised questions about whether the Bank of Japan will intervene in the foreign exchange market to stabilize the yen. Takaichi Sanae's victory in Japan's ruling party leadership election prompted markets to bet on loose fiscal and monetary policies, putting pressure on the yen. Former Japanese Deputy Minister of Finance for International Affairs Masato Kanda pointed out that when the Bank of Japan intervenes in 2022-2023, the triggering condition is about a 4% depreciation of the yen within two weeks. By this standard, he believes that the potential intervention threshold for USD/JPY is around 154-155.
Jane Foley, an analyst at Rabobank, said in a report that although the U.S. dollar has lost some of its luster due to threats to the Fed’s independence, the U.S. dollar remains the same major safe-haven asset as gold. The recent rise in gold prices has raised questions about the dollar's function as a safe-haven asset, she said. Although the dollar will still face risks into 2026, "the depth of U.S. capital markets means that investors will not be able to turn their backs on the dollar if geopolitical risks intensify." The dollar's "hard power" is also a factor in its safe-haven appeal, and U.S. security guarantees strengthen the dollar's dominance.
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