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Political events are transitioning smoothly, the ECB remains unchanged. Can European and American bulls continue their offensive
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: Political events are transitioning smoothly, the ECB remains unmoved, can European and American bulls continue their offensive?" Hope it will be helpful to you! The original content is as follows:
Asian market market
After the release of last week's weak U.S. employment report, the US dollar index continued its decline on Monday, and so far, the US dollar is quoted at 97.32.
1. The U.S. Senate panel will vote on the nomination of the Federal Reserve Board of Directors in Milan on Wednesday, and a full vote will be held after approval.
2. French Prime Minister Bellu will submit his resignation without passing a vote of confidence.
3. New York Fed Survey: People expect unemployment rate and unemployment risks to rise, and the Federal Reserve is expected to cut interest rates next week.
4. The EU plans to launch the 19th round of sanctions against Russia to lock in bank and oil trade.
5. The "Inheritance Battle" of the Murdoch family has eouu.cne to an end, and the eldest son controls the media empire.
Summary of institutional views
Dutch International Bank: The annual non-agricultural benchmark correction may not escape a significant downward revision, but the 50-basis point rate cut will still not account for the majority
Consumers are already worried about the rise in prices and the decline in consumption capacity due to tariffs. If we superimpose this concern with concerns about employment, it indicates that the downside risk of economic activity is increasing. This proves that even if some members of the Fed are not eouu.cnpletely satisfied with the inflation outlook, it is necessary to take action in advance. We expect the Fed to cut interest rates by 25 basis points in September, October and December, and further cut interest rates by 50 basis points in early 2026point.
While a 50 basis point cut in September is possible, we do not think the Fed will do so. Expectations of interest rate cuts may heat up after the preliminary benchmark correction of the 12-month non-farm employment data for the 12-month period ending March 2025 were released on Tuesday. According to state unemployment insurance tax records, the U.S. Quarterly Census for Employment and Wages (QCEW) shows that the nine-month employment from March to December 2024 is 857,000 fewer people than reported in the non-farm employment report, meaning an average of 95,000 downwards per month may occur. We expect the gap between non-agricultural data in the first quarter of 2025 and data released by QCEW during the same period will narrow, but even if the 750,000 people are downgraded, it will still be a major change in the employment situation.
However, given the current conservative eouu.cnposition of the Fed and the uncertainty of inflation tariffs, the 50 basis point camp will not account for the majority, but we may see two or three eouu.cnmissioners vote for a 50 basis point cut.
Bank Paribas: The Federal Reserve is facing "encirclement and suppression" of the White House, and political conflicts and labor risks should be cooled down.
The August employment report shows that the impact on both the supply and demand sides of the labor market exceeded expectations. This led to a sharp drop in new jobs, but even months after the economic restart, the unemployment rate has only slightly increased and there are no significant signs of a significant labour overcapacity. eouu.cnbined with the fluctuation of the number of people applying for unemployment benefits within the range, the stable job openings and firing rates, the official and alternative data all show that new jobs are at the lower limit of our short-term "break-even" estimate range (50,000-75,000), and the resilient corporate survey data, we continue to regard "moderate weakness" and relatively stable unemployment rates as appropriate benchmark scenarios - especially when monetary policy stops tightening.
We expect the Federal Reserve to start an easing cycle in September 2025, with a total of 5 25 basis points rate cuts: the specific time points are September, October, December, and March and June 2026. We believe that Chairman Powell and the Federal Reserve, whom he led, are facing a political "encirclement": the White House continues to criticize sharply and Congress has little support. In this context, it is obviously not feasible to maintain a long-term restrictive monetary policy stance at the expense of high unemployment. This priority ranking of putting employment risks above inflation risks—a fundamental change with Powell’s statement—has made recent easing of policy restrictions imperative, trying not only to cool down ongoing political conflicts but also to prevent the risk of further cooling of labor demand.
Under this loose path, we expect terminal interest rates to be around 3%, which may be a moderately loose policy stance: we believe that the short-term neutral interest rate is about 3.75%, and Powell's quantitative judgment on the policy's "moderate restrictiveness" should be close to this level.
Standard Chartered Bank: Labor force shifts from "stable" to weak, and the Federal Reserve is likely to cut interest rates by 50 basis points
The US labor market report in August performed weaker than expected. Overall non-farm employment increased by only 2.2There are 10,000 people, far below the 75,000 people in the market consensus. The year-on-year growth rate of weekly average working hours and hourly wages was also lower than expected, with the unemployment rate rising to 4.3%, breaking the operating range of the past 15 months and reaching the highest level since the recovery period of the new crown epidemic in 2021. Although Federal Reserve Chairman Powell still described the labor market as "stable" at the FOMC meeting on July 30, his position at the Jackson Hall meeting in August has changed significantly.
We believe that the August employment data opened the door to a "catching-up" rate cut of 50 basis points in September FOMC meeting, just as in the same period last year. Currently, the market price of interest rate cuts in September is only 28-29 basis points, which has not fully reflected this expectation. We realize that this judgment is ahead of the market, but the preliminary revisions to the employment data from April 2024 to March 2025, expected next week, will support our forecast of a 50 basis point cut.
We insist that overall employment data and unemployment rates fail to fully reflect the degree of labour market weakness due to the distortion of the adjustment of the birth-death model, which is verified by a more significant decline in the employment population ratio. We still doubt whether the economic growth and inflation background allow for further easing after September, but if the initial rate cut reaches 50 basis points, the market may take time to reprice the subsequent slower rate cut.
Facetronautics Bank looks forward to the US August CPI: inflation pressure is high, and the impact of tariffs continues to spread
Overall inflation in August may accelerate again, with a month-on-month increase from 0.296% in July to 0.3%, and a year-on-year growth rate increased by 0.2% to 2.9%. Both the food and energy categories are expected to strengthen: energy prices turn from -0.9% in July to +0.5% in August (from -1.3% to 0.296% year-on-year), and the month-on-month growth rate of food prices accelerates from 0.1% to 0.3% (from 2.9% to 3.0% year-on-year). The key factor driving the rise in energy costs will be the price of motor vehicles, which rose by about 1.5% month-on-month (calculated seasonally).
In addition to the volatility eouu.cnponent, core inflation pressure may remain strong, up 0.3% again on the month-on-month, but due to rounding calculations, the annual rate may drop slightly from the previous 3.1% to 3.0%.
The above content is all about "[XM Foreign Exchange Decision Analysis]: Political events are transitioning smoothly, the ECB is still holding hands, can European and American bulls continue their offensive?" It is carefully eouu.cnpiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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