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Hello everyone, today XM Forex will bring you "[XM official website]: The short-term outlook for the US dollar is bearish, and attempts to rebound may be short-lived, waiting for US inflation data." Hope this helps you! The original content is as follows:
In the Asian session on Friday, the U.S. dollar index fluctuated around the 99 mark. The market expects that the probability of the Federal Reserve cutting interest rates by 25 basis points next week is close to 90%. Despite strong initial jobless claims data in the United States last week, it did not change the market's firm expectations for an interest rate cut. In addition, speculation that White House economic adviser Hassett may take over as chairman of the Federal Reserve continues, and the market believes that its policy stance may be dovish. This factor also puts pressure on the dollar.
US dollar: As of press time, the US dollar index is hovering around 99.03. The US dollar rose slightly on Thursday, ending the previous nine consecutive trading days of decline, but the overall trend is still near a five-week low. The market is preparing for the Federal Reserve's interest rate cut next week. Traders are likely to accelerate their selling of the dollar as expectations grow for a rate cut by the Federal Reserve next week and speculation intensifies that Powell may be replaced by a more dovish figure. Technically, the current index is approaching the key swing lows of 98.55 and 98.01. At the same time, it is facing the mid-term correction range of 98.24-97.8, and the short confidence is firm. Before regaining the 50-day moving average, bulls will most likely continue to wait and see.
The narrative in financial markets hasn’t changed, with investors awaiting the Dec. 10 U.S. Federal ReserveChu’s decision day. U.S. economic data provided a tailwind for the dollar, with initial jobless claims falling sharply in the week ended November 29, indicating that the labor market remains strong. Technically, despite some losses, EUR/USD has remained stable around 1.1650 for four consecutive sessions, establishing a new trading range between this threshold and 1.1700. The relative strength index (RSI) shows fading buying momentum, which could threaten a test of the 1.1800 level, before traders could challenge the year-to-date (YTD) high of 1.1918. If EUR/USD breaks below 1.1650, initial support is provided by the 50-day simple moving average (SMA) at 1.1610, followed by the 20-day SMA at 1.1589 and finally 1.1500.
Weak U.S. data have strengthened market expectations for a 25 basis point interest rate cut by the Federal Reserve, with traders assigning an 85% probability. Market focus has turned to policy guidance from future meetings to determine whether the Fed is preparing to launch a broader easing cycle. Reports that White House adviser Kevin Hassett may succeed Powell have heightened market concerns that bond investors may support deeper, politically-oriented interest rate cuts. Falling expected returns on U.S. assets have led global investors to reduce their exposure to the U.S. dollar, which has in turn dragged the U.S. dollar weaker. Weekly initial jobless claims fell to 191,000 (the lowest since September 2022), but this positive performance was overshadowed by a 32,000 decrease in private non-farm employment. The superimposed ISM service industry PMI recorded 52.6%(Showing that economic momentum is solid but not strong), interest rate cut expectations continue to be supported.
The U.S. Treasury yields rose (10-year yield 4.100%, 2-year yield 3.527%). This increase boosted the U.S. dollar. The market remains focused on expectations for a rate cut next week. Traders continue to focus on subsequent economic data, but there is currently no data that poses a challenge to the outlook for easing.
On December 4, recent themes continued to emerge in the SOFR options market: traders are focusing on a variety of structural transactions in the first two quarters of next year to hedge against the possibility of multiple interest rate cuts by the Federal Reserve, or even a (single) 50 basis point rate cut. Fed-dated overnight index swaps (Fed-dated OIS) currently price the effective rate at next June’s meeting at about 3.30%, about 60 basis points below the Fed’s current effective rate. A continuing theme over the past few trading days has been the purchase of upside structures in January, March and June SOFR options designed to hedge against more of a rate cut premium than is currently priced in in the swap market.
Institutional analysis said that Bank of Japan Governor Kazuo Ueda emphasized the risk of inflation and the danger of a weak yen, convincing Japanese Prime Minister Sanae Takaichi to accept his plan to raise interest rates in December. Just last year, Gao Shi publicly called raising interest rates a "stupid move." This www.xmasseuse.communication seems to have worked: both the market and the new Japanese government have received the signal that a slight 25 basis point interest rate hike to 0.75% later this month is almost a foregone conclusion, alleviating external concerns that the Bank of Japan will succumb to political pressure and abandon its tightening policy. However, the thornier question is: How will the Bank of Japan www.xmasseuse.communicate the path of future interest rate increases? Since there is no consensus on a reasonable range for the neutral interest rate, the task is far more www.xmasseuse.complex than a single rate hike. A fragile truce currently exists between central banks and governments, keeping bond markets on edge. Investors have turned their attention to how Ueda will express the pace of subsequent interest rate hikes next time.
British investors withdrew 3 billion pounds from the stock market in November, with almost daily capital outflows before British Finance Minister Reeves announced the budget. They did not start buying stocks again until the budget measures were not as stringent as expected. UK investor withdrawals were the second-worst month on record, behind October's £3.6 billion withdrawals, according to data www.xmasseuse.compiled by Calastone. Outflows reversed on Nov. 26, the day Reeves unveiled his budget, suggesting some investors were returning to the market after expected tax increases were not implemented. These data further prove that the policy signals before the budget announcement have made the economic atmosphere tend toCaution, these signals have weakened consumer confidence, dragged down retail sales, and had an impact on the housing market.
A Reuters survey shows that if the time for Canada and the United States to reach a trade agreement is extended, it may increase the prospect of further interest rate cuts by the Bank of Canada, and the appreciation of the Canadian dollar in the next year will be lower than previously expected. In the survey from November 28 to December 3, the median forecast of 33 foreign exchange analysts showed that the Canadian dollar would appreciate 0.3% to 1.39 Canadian dollars in three months, www.xmasseuse.compared with 1.37 in the previous month's survey. The Canadian dollar is expected to appreciate 2.5% to 1.36 in 12 months, www.xmasseuse.compared with the previous forecast of 1.35. Bradley Saunders, North America economist at Capital Economics, said: "With the federal budget slightly flat and any form of new trade arrangement with the United States still months away, it's hard to see what can kick-start the economic recovery short of easy monetary policy. So we still expect the Bank of Canada to kick-start an economic recovery tomorrow once core inflation returns to near target. The policy rate will be lowered below its estimated neutral range around the middle of the year. ”
Fitch Ratings said in its December Global Economic Outlook that as the Bank of Japan is expected to continue to normalize its monetary policy stance, there is some room for the yen to appreciate. The report said that USD/JPY 160 remains an important threshold, noting that the yen's recent weakness has prompted Japan's Ministry of Finance to increase its verbal warnings.
Craig Chan, head of global foreign exchange strategy at Nomura Securities, said at a media conference on Thursday that the U.S. dollar is expected to remain roughly stable in 2026, although there are significant downside risks to this forecast. He noted that despite strong gains in the S&P 500 and Nasdaq, foreign flows into U.S. markets are declining, raising the risk of inflows falling to zero or even turning negative. Dollar selling and hedging could become a powerful trading force, Chan added, estimating that a 10% increase in hedging in Japan alone could translate into about $140 billion in dollar selling. He believes other key risks to watch in 2026 include the Supreme Court's ruling on the Trump administration's tariffs, the Federal Reserve's independence issues and the ongoing Cook removal case.
(Editor: Xiaoqi)
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