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The US dollar is facing a tariff storm, and the pace of global central banks' interest rate cuts is facing a reshuffle?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: The US dollar faces a tariff storm, and the global central banks' rate cut rate is facing a reshuffle?" Hope it will be helpful to you! The original content is as follows:
This week (April 7 to 11), the international foreign exchange market continued to fall into the uncertainty brought by US tariff policies, and the US dollar index further weakened, falling below 99.50, setting a three-year low. The main line of the current market remains global trade tensions and uncertainty in the U.S. economic outlook, which not only dominates the trend of major currencies against the US dollar, but also has a significant impact on the policy decisions of central banks next week.
Dollar – Tariff narrative dominates the market
The macro event that US dollar traders are most concerned about this week is undoubtedly the release of US March CPI data. Economists generally expect that the data will show that the U.S. inflation pressure is easing, and the actual results are indeed the case. CPI rose 2.4% year-on-year in March, down from the previous 2.8% and expected 2.5%. Below-than-expected CPI data could put pressure on the dollar, as it provides some room for the Fed to cut interest rates in the near future.
In terms of monetary policy, the Federal Reserve released the minutes of its last meeting this week. Fed policymakers expressed concerns about the resilience of the U.S. economy, and participants noted: "These moves seem to reflect an increased risk of a significant deterioration in the U.S. outlook—not the basic scenario—this is the result of trade policy developments." However, the statement in the minutes that "therefore, participants generally believe that employment and economic growth face greater downside risks, and inflation faces upside risks, while pointing out that there is a high degree of uncertainty in its economic outlook" seems to send a signal that the Fed may take a wait-and-see attitude.
Trump announced a suspension of further tariff plans, saying that he would suspend raising tariffs within 90 days. This week, the United States and other countries increased tariffs on each other; however, the recent "suspended" tariffsThe exhibition shows that the U.S. government is willing to return to the negotiating table to agree on a trade agreement.
GBP – Follow UK CPI data next week
For GBP traders, this week is relatively calm, except that the Halifax House Price Index is lower than expected, which is -0.5% on a monthly basis, down from 0.2% below expectations. However, the UK's February GDP figures were better than expected, which could provide some support for the pound at the end of the week. Looking ahead to next week, analysts are paying attention to UK unemployment rates in February and March CPI data. The first is the unemployment rate, which, if the data shows that the labour market remains resilient, may be seen as a positive signal to the UK economy, in turn supporting the pound and vice versa. As for CPI data, if it shows that the UK's economic inflation pressure is stubborn or even accelerated, it may increase the pressure on the Bank of England to maintain a wait-and-see attitude, which may also support the pound. The easing of inflationary pressure may increase market expectations for the Bank of England to continue its interest rate cut cycle, which may put pressure on the pound.
On the political level, British Prime Minister Kiel Stamer promised earlier this week that he would only sign a trade agreement with the United States if it was in the interests of the UK. The UK reportedly hopes to sign an agreement with the United States to limit its impact on the UK in exchange for tax changes to large tech xmaccount.companies. However, with Trump's announcement of a 90-day delay in tariffs, it may not have an impact on the UK economy in the near term.
Yen – Follow CPI data next week
For yen traders, there are no major financial data released this week. As a result, analysts turned their attention to March national CPI data to be released next Friday. If the CPI is higher than the previous 3.7%, it will mean that Japan's economic inflation pressure will accelerate, which may open the door for the Bank of Japan to restart the interest rate hike cycle, which may support the yen. However, lower CPI data means inflationary pressures are alleviated, which may have the opposite effect, which may put pressure on the yen.
When it xmaccount.comes to monetary policy, yen traders may be paying attention to xmaccount.comments from Bank of Japan Governor Ueda, who said "we need to pay close attention to risks, especially the recent rise in uncertainty brought about by trade policy developments in various countries", suggesting that central banks may remain on the sidelines for the foreseeable future until the situation is clearer about potential tariffs that the U.S. may impose on Japan. Nevertheless, this could support the yen if Bank of Japan policymakers suggest a possible resumption of the rate hike cycle.
Euro – ECB resolution next week
EU relations with the United States are on a vulnerable state, and the EU is ready to deal with tariff measures hinted by Trump. The EU plans to impose a 25% retaliatory tariff on U.S. goods, but it appears that decision has been retracted after Trump announced it would postpone the tariff by 90 days.
In terms of monetary policy, the ECB's interest rate decision will be held next week. Economists widely expect the ECB to cut interest rates by 25 basis points, and the Euro OIS currently suggests that the probability of this happening is 94.75%. Therefore, as market participants have almost fully expected the ECB rate cut, traders will pay attentionThe follow-up statement turned to the central bank. If the accompanying statement shows that despite Trump's 90-day suspension of tariffs, the ECB continues to worry about the resilience of the European economy, it could imply that the ECB may continue to cut interest rates in the near future, which could put pressure on the euro. On the other hand, if the ECB expressed concerns about the re-rising inflationary pressure, it could suggest it could remain on the sidelines, which might support the euro.
At the macroeconomic level, Germany's March CPI data was lower than expected, suggesting that inflationary pressures in one of the most important economies in the euro zone were easing. However, this data may be ignored due to the ongoing tariff narrative this week. Nevertheless, traders will focus on Germany's April ZEW economic prosperity index as an indicator of consumer economic confidence. This indicator may support the euro if improved, and vice versa.
https://xmaccount.comAustralia dollar – Focus on the minutes of the RBA meeting next week
In terms of monetary policy, the minutes of the last RBA meeting will be released next Tuesday. The minutes may provide more about internal discussions of the Fed and the mindset of policy makers on how to deal with the next decision. Therefore, if the minutes show that the Fed is willing to cut interest rates, this may be regarded as a dovish statement, which may in turn put pressure on the Australian dollar. On the other hand, if the minutes show policymakers restrain themselves, thus suggesting interest rates remain stable, this may be seen as a hawkish statement and in turn may support the Australian dollar. However, given that the RBA's decision was made ahead of the rapidly changing ongoing trade tensions last week, the impact of the minutes on the forex markets may be limited.
At the macroeconomic level, there are no major financial data released in Australia this week. Therefore, analysts are paying attention to next week's data, with Australian employment data set to be released next Thursday. If Australia's employment data show a slowdown in the labor market, it could signal a worsening outlook for Australia's economy, which could put pressure on the Australian dollar. On the other hand, this could support the Australian dollar if employment data show labour market resilience.
Canadian dollar – Bank of Canada will cut interest rates by 25 basis points?
In terms of monetary policy, the Bank of Canada's interest rate resolution will be held next Wednesday. Market participants currently generally expect the central bank to cut interest rates by 25 basis points, and the Canadian dollar OIS currently suggests that the probability of this happening is 66%. Therefore, if the central bank cut interest rates as current expectations of market participants, this could put pressure on the Canadian dollar. Additionally, analysts are concerned about the central bank’s side statements that could provide Bank of Canada’s considerations about ongoing trade tensions between the United States and its trading partners. If the central bank shows hesitation about continuing interest rate cuts in the future, this may support the Canadian dollar, as it may be seen as a hawkish statement. On the other hand, if the central bank suggests that interest rate cuts may continue, this may have the opposite effect, which may put pressure on the Canadian dollar.
Traders follow Canadian March core next weekCPI data. If the core CPI data shows that Canadian economic inflation pressures accelerate, this could increase pressure on the Bank of Canada to stay on the wait-and-see, which in turn may support the Canadian dollar. On the other hand, if the core CPI data shows inflationary pressure relief, this may put pressure on the Canadian dollar.
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