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Hello everyone, today XM Foreign Exchange will bring you "[XM Official Website]: The regeneration of trade differences in Europe and the United States triggered the euro selling, and the US index soared!". Hope it will be helpful to you! The original content is as follows:
On Monday, the US dollar index rose sharply, and continued to rise after breaking through the 98 mark during the session. As of now, the US dollar price is 98.67.
1. Tariffs
① Bangladesh wants to purchase Boeing aircraft and strive for the United States to reduce tariffs.
② South Korea proposed to "make the US shipbuilding industry great again" and strive to reach a tariff agreement as soon as possible. South Korea's presidential office said U.S. trade negotiations include increasing defense spending and purchasing U.S. weapons.
③The United States and Europe are still discussing tariff exemptions for wine and spirits.
④Trump: We will announce tariffs on drugs in the near future; global tariffs will be around 15-20%.
⑤ Canadian Prime Minister Carney: Trade negotiations with the United States are in a tense stage. ⑥Chilean Finance Minister expects copper tariffs to be exempted.
Trump believes the Fed must cut interest rates this week.
Trump expressed disappointment with Putin and considered a ceasefire agreement for Russia in less than two weeks.
Thailand and Cambodia reached an agreement on a ceasefire agreement, which will take effect at 24:00 on the 28th. The U.S. Treasury Department significantly raised its third-quarter borrowing estimate to $1.007 trillion. US Dallas Fed Business in JulyThe activity index expanded for the first time since January 2025. The 5-year U.S. bond auction was unexpectedly weak, with overseas demand hitting a three-year low.
The upcoming non-agricultural employment report will not change the Federal Reserve or our view that the labor market is still healthy, nor will it provide any economic reason for a short-term rate cut. The number of non-farm employment in the United States is expected to increase by 140,000 in July, following an increase of 147,000 in June; the unemployment rate will remain at 4.1%.
We have been refuting the claim that the labor market collapses since the beginning of the year (even when recession concerns in April have increased). The job market's response to interest rates is no longer as violent as before, and it has shown stronger resilience to the economic impact. ngjpn.cnpanies are still scared due to labor shortages after the epidemic and are still reluctant to fire workers. Immigration restrictions reduce labor and prevent ngjpn.cnpanies from laying off workers at will, which will help prevent the unemployment rate from soaring.
Although the “soft” labor market data remains weak, consumers are pessimistic about the employment prospects, and ngjpn.cnpanies’ willingness to recruit is still in a recession, the post-epidemic economy shows that emotions do not necessarily drive behavior. Weak survey data alone are not enough to justify the prediction of a labor market collapse. The unemployment rate has remained stable at 4.1% since the recession argument reappeared in late February, and the United States has added nearly 600,000 jobs. That being said, the U.S. job market is certainly not immune to the recession, and the risks we face in maintaining moderately healthy forecasts of the U.S. job market are the persistent high uncertainty in the macroeconomic environment, the lack of a rapid rebound in the stock market pullback, and the escalating trade war.
The large and extensive U.S. labor market data allows the market to construct extremely pessimistic views by focusing on specific indicators. Even if the non-farm employment report shows strong overall data (proper job growth and low unemployment rate-), there is still a possibility of negative prospects. ngjpn.cnmon examples include: highlighting the rise in part-time jobs due to economic reasons, job loss in temporary aid agencies, a downward trend in average weekly working hours, downward corrections to employment growth data in previous months, and the stagnation of “critical” industry recruitment. But ultimately, the Fed's assessment of the labor market depends on how many jobs are added (regardless of the type), the unemployment rate is, the level of the ratio of job openings to unemployed people, and whether layoffs are accelerating. The Federal Reserve is also fully aware that non-farm employment data may overestimate the U.S. job growth this year, just like last year, overestimate about 40,000-50,000 per month. But even if the Labor Office may correct the data in its annual benchmark adjustment, U.S. job growth remains healthy.
Number of new jobs: 150,000; unemployment rate: 4%; average hourly wage monthly rate: 0.3%
From a monetary policy perspective, the U.S. non-farm data for July has little impact, as it is one of three jobs reports before the Fed meeting in September and one of two reports before the Jackson Hall central bank's annual meeting in August. We expect non-farm employment to increase by 150,000 as unemployment rate drops to 4%.
We believe there are several reasons why the economy can continue to remain resilient. Seasonal adjustment factors may artificially curb employment growth. There are recent deviations in how these factors are calculated, resulting in these factors being below historical normal levels in July. Furthermore, historically, some make-up will usually occur next month when weather factors drag down non-farm jobs for several consecutive months, like in May and June this year. The impact of tariffs on employment is uncertain at present. Given the capricious U.S. trade policy, tariffs may curb hiring willingness.
However, it is worth noting that the quality of US data is not only about inflation statistics, but also about the job market. Survey response rates for non-farm employment data and household survey data are declining. Recent budget cuts by the U.S. Bureau of Labor Statistics have exacerbated this trend.
Another key factor may be working hours. In June, working hours fell by 2.8% month-on-month, partly due to weather. Another possibility is that if the economy shows resilience in the face of short-term shocks, employers will limit their working hours rather than reduce their jobs. Wage growth may also rebound, thanks to a month-on-month increase of 2.7% in June.
Big situation: Pay attention to Jackson Hall Annual Meeting
We do not expect the Federal Reserve meeting in July to bring about policy changes. Most FOMC members are likely to consider this meeting as a “transitional meeting.” The current inflation risk is still rising, while the labor market risk is downward, which is consistent with the judgment in June. The Fed will obtain more relevant data before its September meeting, including two rounds of employment reports, CPI and preliminary estimates of benchmark non-agricultural corrections.
Statement changes: minuscule
We do not expect substantial changes to the FOMC policy statement. Policymakers may simplify the statement about uncertainty in the economic outlook in the second paragraph, for example, to change it to: "The uncertainty of the economic outlook remains high." Director Waller is very likely to vote against this meeting and support a 25 basis point rate cut. Bowman may vote against it, too.
Will Powell strengthen or downplay the signal of the "June dot map"?
The key issue of the press conference is the short-term interest rate path. If Powell is asked whether he agrees with the "50 basis points interest rate cut within the year" implied by the median dot chart in June, if he downplays the dot chart, emphasizes that "the current interest rate level is appropriate" or "there is no urgency to cut interest rates for the time being", he will be regarded as a hawkish statement by the market. He could cite the rebound in PCE inflation in June (affected by tariffs) and the stability of unemployment as reasons for support. If he says FOMC is still expected to start this yearRate cuts, especially the possibility of "multiple interest rate cuts", would be a very dovish signal.
Federal independence issues: Will “get away from talking”
Powell will almost certainly be asked about rumors about his possible removal last week, as well as overruns in the Fed’s Eccles building. He is likely not to respond substantively to these issues, but will: reiterate his intention to ngjpn.cnplete his term while keeping ambiguity on whether to continue serving as director in May next year; point out that the Attorney General's office is investigating the cost of renovation and mentioning the Fed's FAQ document released earlier in July.
The Federal Reserve is gradually approaching the restart of interest rate cut cycle, but now is not the time. The June meeting showed that there was a clear division of opinions within the FOMC, with some participants believing that interest rates should not be cut this year, while others supported interest rate cuts as early as July. Waller continued to send out signals that he might vote for the rate cut.
Since then, macroeconomic indicators have begun to tend to support further rate cuts, but the relevant data still remain distorted. The June minutes mentioned that the achieved and expected high inflation was seen as hawkish risks, but both figures have been lower than expected since then. The initial value of manufacturing PMI in July was weaker than expected, but was at least partly due to slowing stockpiling activities in the early stage and clear guidance from ngjpn.cnpanies in awaiting tariffs. Since tariff policies remain unclear after August 1, it is difficult to make advance ngjpn.cnmitments at the current stage, but we still believe that the possibility of a rate cut in September is relatively high. There is no doubt that Powell will evade any question as to whether monetary policy is influenced by political motivation.
As tariff payments continue to increase, ngjpn.cnpanies eventually have to pass on costs to the price side or cut costs in other ways. Although we expect ngjpn.cnmodity and food price inflation to accelerate this fall, we are more worried about the impact of tariffs on the labor market than ongoing inflation.
After September, we expect a 25 basis point rate cut every quarter until the federal funds rate target is lowered to 3.00%-3.25% in September 2026. In our opinion, the current outlook risks are balanced. If macroeconomic data starts to fall below expectations, it is entirely possible that the Fed will cut interest rates at every meeting after September.
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