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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange]: The US dollar regains its rebound trend! The turning point of the trade war triggers the foreign exchange market, and next week will usher in a "super week". Hope it will be helpful to you! The original content is as follows:
The market responded sharply to the news that the 125% medical equipment tariff could be exempted, and safe-haven assets were sold. As of 15:40, the US dollar exchange rate against the Japanese yen once rose 0.86% to 143.85, and the US dollar rose 0.8% to 0.8333. Major non-US currencies were generally under pressure, with the euro falling 0.6% to 1.1315 at one point and the pound fell 0.5% to 1.3273. Bart Wakabayashi, manager of the Tokyo branch of State Street, pointed out that traders are paying close attention to relevant news and any signs of loose tariffs may trigger rapid adjustments in market positions.
In terms of fundamentals, Japan's latest inflation data shows that the core CPI in Tokyo rose 3.4% year-on-year, accelerating for the second consecutive month, but the market generally expects that the Bank of Japan will maintain its current policy unchanged next week. Looking ahead to next week, the first quarter GDP, March PCE price index and non-farm employment data will be released intensively, and this series of major economic data may redefine market expectations. Analysts at Ruisui Securities warned that if the US-Japan trade negotiations are not going well, the US dollar-JPY exchange rate may be difficult to break through the key resistance level of 145. Investors need to be wary of the violent market fluctuations that may be caused by the dual factors of data and policy.
The US dollar trend this week was deeply affected by the White House policy swing. Trump's remarks threatening to fire Federal Reserve Chairman Powell at the beginning of the week led to a sharp drop in the US dollar, and the next day he changed his words and said that he "never planned to remove" pushed the US dollar back. There are also signals of differentiation in the trade field, and the United States and South Korea have already agreedA preliminary agreement was reached for cancellation of new tariffs, but the US-Japan negotiations remained deadlocked. The meeting between US Treasury Secretary Bescent and Japanese Treasury Secretary failed to reach a consensus on the exchange rate framework, highlighting the complexity of global trade games.
Fundamentals may be the main driver of the US dollar in the near future, especially the change in attitude of US President Trump. U.S. Treasury Secretary Bescent commented that trade tensions with other economies could ease, adding that tariffs would be significantly lowered if a trade deal was reached with other economies, which was also confirmed by Trump. Furthermore, the U.S. president no longer attacks Fed Chairman Powell, which eases pressure on the Fed's interest rate cuts, which may allow it to play a supporting role in the U.S. dollar.
From the perspective of monetary policy, market expectations are dovish, and futures market performance suggests that traders generally expect the Federal Reserve to remain silent in the next meeting, but at the same time, it is also pricing the three interest rate cuts before the end of the year. However, Fed policymakers appear to be skeptical of a massive rate cut, with Cleveland Fed Chairman Hamack recommending being patient while assessing the impact of U.S. tariffs on the economy.
In terms of macroeconomics, the market is particularly concerned about the initial U.S. first-quarter GDP value to be released on Wednesday, and the growth rate is expected to slow down significantly. If the data re-induces market concerns that the U.S. economy may fall; while growth may accelerate, it may alleviate market concerns and support the dollar. The market focused on the US April job report on Friday, and expected data will show that the U.S. job market slowed down, and if so, it could suppress the dollar because it could strengthen the market's dovish expectations of the Federal Reserve.
At the macroeconomic level, Japan's March CPI data sent mixed signals to Japanese yen traders, the overall inflation rate slowed down while the core inflation rate accelerated. But even with this change, the two ratios remain significantly higher than the Bank of Japan’s target, thus likely allowing the central bank to make more rate hikes. It is worth noting that Tokyo's April CPI data accelerated beyond market expectations, which may be a prelude to the national inflation rate, given the city's population density. On the other hand, the market is concerned about the Japanese economy, as preliminary data on manufacturing PMI in April is still in a contraction, but the expansion of economic activity in the service industry has accelerated. At the fundamental level, the potential adverse impact of Trump's tariffs on the Japanese economy is focused on Japan's automobile manufacturing industry. Analysts believe the issue continues to put pressure on the yen as it affects Japan's economic outlook.
At the monetary policy level, the focus of yen traders next week will be the Bank of Japan interest rate decision next Thursday. According to the yen overnight index swap, the market currently appears to expect the central bank to keep interest rates unchanged and at that level, while expectations for a December meeting rate hike are close to 50%. Some analysts tend to highlight the possibility that central banks may make more rate hikes, one of which could be in the third quarter, citing the Bank of Japan's focus on Japan's inflationary pressure. Therefore, traders' attention is expected to turn to the Bank of Japan's forward guidance in the accompanying statement and subsequent press conferences. The market expects the central bank to mention uncertainty caused by Trump's tariff regime, which may ease expectations of interest rate hikes, which may put pressure on the yen, but if the Bank of Japan's focus shifts to inflationary pressures, it may indicate a possible rate hike, thus supporting the yen.
European economic data will be a key factor in the direction of the euro next week. The market is concerned about the initial HICP inflation rate in April, which, if slowed down, could lead to a lower euro as the slowdown could strengthen market expectations for the ECB rate cut. On the other hand, if initial GDP growth accelerates in the first quarter, showing another month-on-month growth, it may provide support for the euro, as market concerns about the eurozone economy likely to fall into recession may ease.
At the monetary policy level, European Central Bank President Lagarde said yesterday that Trump's tariff policy is expected to have a deflationary effect on the eurozone economy. This may in the market see the European Central Bank's intention to cut further interest rates. If ECB policymakers send more dovish signals, it could increase dovish expectations in the market and put pressure on the euro. Currently, traders expect the ECB to cut interest rates two to three more times by the end of the year. At the fundamental level, the market believes that the European Commission and the German government's expansionary fiscal policy intentions have a supportive role in the euro. On the other hand, Trump's tariffs tend to put pressure on the euro, and market participants' hopes for the European and American summit are rising.
The Canadian federal election will be held next Monday. This election seems to have attracted widespread attention compared to past elections. Currently, the market expects the Liberals to win an absolute majority, which could have a short-term impact on the Canadian dollar, while the Conservatives' unexpected victory could lead to a rise in the Canadian dollar. However, the main problem that has troubled Canadian dollar traders is the current U.S. tariffs on Canadian products. If trade tensions between the two countries ease, the Canadian dollar may see some support and vice versa. At the fundamental level, oil prices have remained relatively stable over the past few days, but if oil prices fall next week (considering Canada's position as a major oil-producing economy), it could have a bearish impact on the Canadian dollar.
At the macro level, two important data will be released next week. The first is the February GDP growth rate on Wednesday, which may provide some support for the Canadian dollar if the growth rate accelerates; the second is the April manufacturing S&P PMI data, which if the data falls further, suggests that the sector's economic activity has deepened, which may put pressure on the Canadian dollar. At the monetary policy level, the market expects the Bank of Canada to keep interest rates unchanged in its next meeting, but also expects the Bank of Canada to cut interest rates twice by the end of the year. Therefore, there is a dovish tendency in the market and any opposite signal from Bank of Canada policymakers could force the market to reprice, thus providing some support for the Canadian dollar.
The above content isAbout "[XM Foreign Exchange]: The US dollar has regained its rebound trend! The trade war turns around and triggers the foreign exchange market. Next week, the entire content of "Super Week" is carefully compiled 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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