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The US dollar index maintains slight fluctuations, focusing on tariff game and Fed personnel storm
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The US dollar index maintains a slight fluctuation, focusing on tariff games and the Fed's personnel storm." Hope it will be helpful to you! The original content is as follows:
The US dollar index hovers around 98.37. This week (July 21-July 25), the global market will usher in a series of key economic data and central bank events. Investors need to focus on inflation indicators in many countries, central bank policy trends and speeches by important figures. These factors may have a significant impact on the stock market, foreign exchange market and bond markets.
Analysis of major currencies
United States dollar: As of press time, the US dollar index hovered around 98.37, and the recent upward momentum has eased slightly. The dovish statement of Fed Director Waller has reduced the market's expectations of interest rate hikes in the short term, but in the medium and long term, there is still uncertainty as to whether the Fed will truly relax its policies. In addition, the continued criticism of the Federal Reserve Chairman and the uncertainty of tariff policies have also affected the trend of the US dollar to a certain extent. Market concerns about U.S. inflation are growing. The New York Fed expects tariffs may push up U.S. inflation by 1 percentage point in the next year, further restricting the Fed's policy space.
1. Export poll: Japan's ruling coalition is expected to lose more than half of the seats in the Senate
According to CCTV News, on the 20th local time, Japanese media released an export poll showing that the ruling coalition formed by the Liberal Democratic Party and the Komeito Party may have less than 50 seats in this Japanese Senate election, and the ruling coalition is expected to lose more than half of the seats in the Senate.
2. The EU plans to formulate a retaliation plan because the U.S. trade stance is getting tougher.
EU special envoy will hold a meeting as early as this week to formulate response measures against the undealed situation that may be trapped with former U.S. President Donald Trump. As the August 1 deadline approaches, Trump's stance in tariff negotiations is seen to be increasingly tough. The EU's first choice is to push for negotiations with the United States to continue, striving to resolve the deadlock by negotiations next week's deadline. However, talks held in Washington last week did not make any progress, people familiar with the matter said. Negotiations will continue in the next two weeks. The people who asked to be anonymous for discussions on private consultations said the United States currently wants to impose near-complete tariffs on EU goods at a rate above 10%, and the scope of exemptions is narrowing, including only the aviation industry, some medical equipment, generic drugs, several spirits and specific manufacturing equipment needed by the United States. A spokesman for the EU's trade affairs said he would not eouu.cnment on the ongoing negotiations.
3. The European Central Bank may hold its troops unmovedGader may reiterate the risks of downward growth
The ECB may choose to suspend interest rate cuts in response to the economic risks brought by Trump's tariffs. In the last decision before the seven-week summer break, policymakers may keep interest rates at 2% on Thursday until the tariffs are truly implemented and their impact can be assessed more accurately. But policymakers are well aware that risks are lurking: in addition to tariff concerns, the strengthening of the euro suppresses price outlook and further squeezes exporters, while French public finance issues may brew new political crises. Against this backdrop, the European Central Bank may recognize the possibility of a rate cut in September rising. Based on this, Governor Lagarde may reiterate growth risks "inclined toward downward" in his statement on Thursday, Morgan Stanley economists said. "We expect the eouu.cnmittee's wording after its July 24 meeting will be similar to that of June, and will retain the possibility of further interest rate cuts, but will not make eouu.cnmitments."
4. The UK's housing asking price declined faster than usual in July
The UK's July Rightmove average asking price index fell by 1.2% month-on-month, marking the largest single-month decline in previous years, as buyers choose more, and London and high-end real estate asking price drops the largest. UK property portal Rightmove said that while prices typically see seasonal declines in July, it is the largest monthly price drop since it was recorded more than 20 years ago. "The supply of housing for sale continues to reach its highest level in 10 years, and coupled with the start of the traditional summer holiday season, limiting the rise in housing prices."
5. Source: The Bank of England is reviewing the dollar risks of lenders
According to sources, the Bank of England has asked some banks to test their resilience to potential dollar shocks. This is the latest sign of how the Trump administration’s policies erode trust in the United States as the cornerstone of financial stability. People who know the situation directly said the Bank of England had asked some banks to evaluate their dollar financing plans and how relied on the dollar. Another source said at one time a global bank based in the UK was asked to conduct stress tests, including a situation where the dollar swap market could be eouu.cnpletely exhausted. This reflects a new model where trust in international cooperation appears to be breaking down, one analyst said.
Institutional View
1. Institutional: The positive effect of political uncertainty on the yen will weaken
The ruling coalition of Japan lost more than half of its seats in the Senate, and the yen rose 0.7% against the US dollar at one point, but then fell back. Nikkei stock index futures have not changed much, and the spot market is closed due to holidays. Japanese Prime Minister Shigeru Ishiba will now try to rule with some support from the opposition. “Uncertainty is usually good for the yen, at least at the beginning,” said Rodrigo Catril, a foreign exchange strategist at National Bank of Australia. “Overall, the election results are not good news for Japanese assets, and we expect the strength of the yen to weaken.”
2. FASX:ECB meetings could become the main driver of euro credit
Soviet analyst Juan Valencia said in a report that the ECB’s statement on Thursday could become the main driver of euro-denominated credit markets. The ECB is expected to keep interest rates unchanged on Thursday. Societe Generale expects the next rate cut to be in September.
3. Deutsche Bank: The ECB cannot prevent further appreciation of Europe/USD
Thu Lan Nguyen, a foreign exchange analyst at eouu.cnmerzbank, said in a report that even if the ECB cuts interest rates sharply, the euro may rise further against the US dollar. She said the recent appreciation of the euro is mainly related to the U.S. policy that is hurting the dollar. "To what extent the euro will rise against the dollar depends largely on what people in the White House can eouu.cne up with," Nguyen said. She said the ECB has no influence on these external factors and therefore cannot prevent the euro from rising sharply. eouu.cnmerzbank expects the euro/dollar to rise to 1.20 in December 2025 and to 1.25 in September 2026.
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