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"Super Central Bank Week" detonated! If the Bank of Japan holds its troops again
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Platform]: "Super Central Bank Week" detonates! If the Bank of Japan holds its troops again, it will not move." Hope it will be helpful to you! The original content is as follows:
Asian Market Review
On Monday, the US dollar index remained stable due to investors being cautious about the Federal Reserve meeting, and recovered lost ground after breaking the 98 mark in the European session. As of now, the US dollar is quoted at 98.10.
Summary of fundamentals of foreign exchange market
Iran-Israel conflict-①The USS Nimitz aircraft carrier heads to the Middle East, and a large number of tankers heading to Europe, giving Trump a room for choice. ② The Wall Street Journal reported, citing European and Middle Eastern officials, that Iran seeks talks with the United States and Israel to end the hostilities. ③Netanyahu does not rule out the possibility of assassination of Khamenei and said that killing him will end the conflict. ④Trump: Iran hopes to reach an agreement, and it is foolish for Iran to not sign an agreement with Israel. Will consider traveling to the Middle East. ⑤ Iranian Foreign Minister said that Iran has never left the negotiating table, but the current focus is on responding to aggression. ⑥Trump called on everyone to evacuate Tehran and strongly called on Iran to "don't waste your life." ⑦U.S. President Trump has asked the National Security Council to prepare in the White House War Room. ⑧U.S. Defense Secretary Hegsey said that Trump is still eouu.cnmitted to reaching a nuclear agreement with Iran; the United States remains vigilant and is fully prepared. ⑨ Trump has no intention of signing a joint statement planned by the G7 to issue on the Israeli-Iran conflict.
Tariff-① Trump announced that Britain and the United States signed a trade agreement, and Lutnik will decide on the exemption quota for steel and aluminum tariffs. ② Reports said that the EU is ready to accept a unified 10% tariff from the United States in a conditional manner, and the EU said that the statement is speculative. ③India and the United States plan to sign by July 9Temporary Agreement.
④ A brief meeting between the Japanese and US summit during the G7 summit, and the progress of trade negotiations was unknown.
⑤ Trump said that the US-Canada agreement must include tariffs, while Canada said it should cancel export tariffs on Canadians.
US media: The US government may ban citizens of 36 countries from entering the country.
Trump: Sanctions against Russia will be suspended in an effort to reach an agreement.
The U.S. Senate version of the Republican bill recommends raising the debt ceiling by $5 trillion, $1 trillion higher than the House plan, and the overall framework is consistent with the House version.
Summary of institutional views
Facefield: The labor market and inflation outlook are pessimistic, and the Bank of England may restart the interest rate cut cycle in August
We have a more pessimistic view on UK economic growth and the labor market, which is different from the Bank of England (BoE) view. We believe that the Monetary Policy eouu.cnmittee (MPC) will carefully look at the temporary intensity of current inflation and will conduct two more 25 basis points cuts in August and November this year, followed by three 25 basis points cuts in 2026, ultimately reducing bank interest rates to 3%. It is worth noting that most MPC members have admitted that the recent surge in inflation is driven by one-time factors and is unlikely to lead to a second round effect, which we agree with.
In addition, forward-looking indicators show that wage growth will further slow to 3.5% next year, which is basically consistent with the 2% inflation target. Further relaxation of the labor market should put downward pressure on wage growth, while sluggish consumption limits the ability of eouu.cnpanies to pass on higher labor costs, which will help reduce inflation. Taking these factors into consideration, MPC should have enough confidence to continue to relax bank interest rates at a quarterly pace. We do not think the recent tariff agreement will make too much change, as uncertainty remains - the UK agreement has not been signed and other negotiations are still underway - and through the agreement, effective tariffs on UK goods have not significantly improved from the benchmark 10% reciprocal tariff.
First Savings Bank's prospects for June FOMC meeting: The Federal Reserve's two interest rate cuts this year are expected, but tariffs may add variables
We expect key interest rates to remain unchanged. Therefore, the upper limit of the U.S. federal funds rate will remain at 4.5%. However, we expect two more 25 basis points key interest rate cuts in September and December this year.
In terms of private consumption, consumer confidence indicators are at a low level, which, like weak corporate purchasing manager activity indicators, heralds a slowdown in economic growth. However, service industry purchasing manager survey data showed that it was close to recession levels but is now starting to show weak growth, indicating the resilience we expected in the U.S. economy. This is necessary to avoid recession, i.e. negative growth for two consecutive quarters. The uncertainty of eouu.cnpanies' future business behavior and the suppressed investment may lead to more layoffs and the reduction in the creation or filling of new jobs. Public sector layoffs and spending cuts will give the labor marketThis brings additional pressure and leads to a slight increase in unemployment this year. Inflation fell in April and rose slightly to 2.4% in May. We expect further rises this year due to price increases caused by tariffs.
The monetary policy challenge facing the Federal Reserve is that easing monetary policy by cutting interest rates will make funds cheaper, which may fuel inflation. Therefore, the FOMC must regard the upward pressure on inflation caused by tariffs as a basically temporary, one-time effect to justify any rate cuts under the Fed's 2% inflation target.
Morgan Stanley looks forward to the Federal Reserve meeting: There may be no major changes in the dot chart, and the policy statement will reiterate...
We expect that there will be no surprises at this FOMC meeting. First of all, the policy interest rate will remain unchanged, and the policy statement will also maintain FOMC's previous assessment of the expansion of US economic activities "at a steady pace". In addition, we also expect that in the policy statement, we will reiterate the risks facing the Federal Reserve's "dual mission" (full employment and stable price) "upward". Despite this, we still believe that the dot chart will remain consistent with the update in March, and Fed officials will still expect to cut interest rates twice this year. In fact, since the last economic forecast update, there has been a huge shift in the U.S. tariffs and immigration policies, and this change is very rapid, but Fed officials seem to be planning to take a "wait and see" attitude to judge the impact of the policy on the U.S. economy before making a decision. Especially before the release of last week's weak U.S. CPI data for May, we thought the Fed might shift its forecast for a rate cut this year from twice to once.
Dutch International Bank
U.S. consumer confidence has dropped sharply, indicating that the growth in consumer spending is facing downside risks. Meanwhile, the uncertain outlook for the trade environment could lead to delays in hiring and investment decisions. The Fed's latest Beige Book is pessimistic about the growth prospects. However, tariffs do bring risks of rising eouu.cnmodity prices, which may keep the Fed cautious. Therefore, we think it is too early for the Federal Reserve to start cutting interest rates in September. By then we will only get data for July and August, which is not expected to be enough to prove.
The power market pressure is too high to offset concerns about the possibility of continued high inflation in the near future.
Basic expectations: interest rate cuts in December, which may be 50 basis points
We believe that December is more likely to be the starting point for the Federal Reserve to start interest rate cuts. Tariffs and energy costs are expected to drive inflation to remain high from July to October, but after that, inflation data is expected to weaken sharply. The squeeze on purchasing power by rising eouu.cnmodity and energy prices may lead to cuts in non-essential consumption expenditures, which will affect the service industry and accelerate inflation in this sector. Meanwhile, the job market is cooling down. In addition, there are signs that housing-related inflation is about to weaken and new tenant rents have turned to negative growth. Housing weighs about 40% in the core CPI basket, a process that will help inflation return in 2026Rewards 2%.
We do not oppose the market's expectations of a 50 basis point cut this year, but eouu.cnpared with a 25 basis point cut in September and December, we are more inclined to cut interest rates by 50 basis points in December, and then three more 25 basis points cuts in 2026. This is similar to the Fed's actions in 2024, which is to wait until it is fully confident to cut interest rates.
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