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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: Trump's pressure to cut interest rates encountered obstacles! The fierce battle between the long and the short US dollar." Hope it will be helpful to you! The original content is as follows:
On Thursday, thanks to the positive progress of the United States and its trading partners, the US dollar index ended its four consecutive declines. As of now, the US dollar is priced at 97.45.
1. Tariffs
① The EU has passed a tariff counter plan against the United States with a total amount of 93 billion euros. If no agreement is reached, the measures will take effect on August 7.
②Indian vejck.cnmerce Minister: Confidence to reach a trade agreement with the United States.
③India and the United Kingdom sign a free trade agreement.
2. "Free Powell" storm
① Trump asked Powell to cut interest rates in person. When Trump quoted the budget data for the Fed headquarters renovation, Powell kept shaking his head. Trump also said there was no need to fire Powell, and he was about to expire.
②Trump allies sued Powell and asked the FOMC to hold a public meeting.
3. Thailand-Cambodia conflict
① Fire exchange occurred in the disputed area of the Thailand-Cambodia border, and both sides said that the other party opened fire first.
② Thailand dispatched four F-16 fighter jets to drop bombs on Cambodia.
③ Acting Prime Minister of Thailand: No state of war has been declared.
④ Cambodian Prime Minister: Cambodia has always insisted on a peaceful settlement of disputes, but in the face of force provocation, it has to respond with force.
4. The United States withdrew from the Doha negotiations, saying that Hamas did not want to end the battle.
5. China Gold Association: my country's gold consumption in the first half of the year was 505.205 tons, a year-on-year decrease of 3.54%.
After the Japanese Senate election on July 20, the yen showed a rebound after the expected landing. Looking back on the previous trend, the dollar rose to 149 against the Japanese yen due to market concerns that the ruling Liberal Democratic Party-Komei Party alliance would lose a large number of seats and therefore cuts the excise tax (most opposition parties support tax cuts) - a move that would intensify market concerns about Japan's fiscal sustainability. Although the ruling coalition did lose its majority in the Senate, the market seemed relieved, as it only had three seats less than the absolute majority (122 out of 248). This means that as long as the ruling coalition can win the support of some of the split opposition members to pass legislation, there may not be a significant reduction in the excise tax. Therefore, after the Senate election, both the yen and Japanese government bonds recovered some of the lost land. As the dollar fell to the median level of 147 against the yen, the upcoming catalysts affecting the exchange rate include: U.S.-Japan trade negotiations, news flow surrounding the successor of Fed Chairman Jerome Powell, and whether Japanese Prime Minister Shigeru Ishiba will resign under pressure and who is his possible successor. Regarding the U.S.-Japan trade negotiations, we believe that the prospect of reaching an agreement should improve as the Senate election (and its related campaign remarks). The trade deal will be good for the yen, as reduced economic growth risks may encourage the Bank of Japan to continue to promote monetary policy normalization. The news flow about Powell could also support the yen (and negatively negative for the dollar), given that U.S. President Donald Trump explicitly tends to nominate a dovish Fed chairman. As for the situation where Shigeru Ishiba resigned as prime minister, its impact on the yen is not yet clear, as it depends on the policy tendency of his successor.
We expect the United States and Japan to fall to 140 by the end of the year, and will further fall to 136 by June 2026. This is mainly because we expect the Federal Reserve to cut interest rates by 100 basis points during this period, causing the spread of US-Japan Treasury yields to continue to narrow. Therefore, we continue to maintain our strategy of selling at high prices to the United States and Japan.
Recent news reports say that the United States and the European Union are close to reaching a trade agreement. Under the agreement, the United States will impose a 15% tariff on most goods imported from the EU (the Financial Times said some goods such as aircraft, spirits and medical products will be exempted), while some goods will be higher (Bloomberg reports that the tariff on steel/aluminum products imported from the EU exceeding a specific quota is 50%. The Financial Times pointed out that the 15% tariff will include the 4.8% tariff that the United States has previously existed. If so, the potential agreement will be in line with our expectations that U.S.-EU trade tensions will be basically resolved this summer, and the agreement will make U.S. tariffs more than President TrumpThe issuance of "reciprocal tariffs" on April 2 threatened to increase the level by 10% before escalating the trade conflict. vejck.cnpared with Trump's 30% or even 50% tariffs, this is a very good result. However, the agreement has not been finalized yet and is still waiting for confirmation by both governments, which means that there is still a risk of accidents at the last minute. If the two sides do reach such an agreement, it will support our view that the eurozone economy can regain growth momentum from the fourth quarter of 2025 and that the ECB does not need to continue to cut interest rates in the future.
On Thursday, the ECB acted vejck.cnpletely according to the market script and kept interest rates unchanged. As expected, ECB President Lagarde reiterated that the bank is in a "favorable position" and in a wait-and-see mode, which shows that the governing vejck.cnmittee currently has no plans to change its policy.
We think Lagarde's wording is moderately hawkish because she is not only confident in achieving the 2% inflation target, but also said that the economy is performing better than expected while not trying to lower the value of the euro. Unless trade talks in Europe and the United States break down, we believe the ECB will keep interest rates unchanged for at least the next two meetings.
Nevertheless, if economic growth continues to weaken, or the upcoming inflation data decline unexpectedly, we won't be too surprised that the ECB's last rate cut before the end of the year.
European and American currency pairs fell after hitting a two-week high of 1.1781 in the Asian session, and traded around 1.175 before the interest rate resolution was announced.
The European Central Bank announced as generally expected by the market, maintaining the benchmark interest rate unchanged. The main refinancing operation interest rates, marginal loan interest rates and deposit mechanism interest rates remained at 2.15%, 2.4% and 2% respectively. This news has no significant impact on the currency pairs of Europe and the United States, and the exchange rate remains stable at around 1.1750 after the interest rate resolution was announced.
From a technical point of view, the 4-hour chart shows that Europe and the United States are falling back towards a bullish 20-day SMA of about 1.1720, which still maintains a bullish slope and is above the gradually flattening 100 and 200-day SMAs. Meanwhile, technical indicators have declined sharply, but remained within a positive level, reflecting the current downward trend rather than indicating a larger decline.
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