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A collection of positive and negative news that affects the foreign exchange market
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Hello everyone, today XM Foreign Exchange will bring you "【XM Foreign Exchange】: Collection of positive and negative news that affects the foreign exchange market". Hope it will be helpful to you! The original content is as follows:
1. Good news
U.S. inflation data is lower than expected, and interest rate cut expectations are heating up
U.S. CPI rose 3.2% year-on-year in July, lower than market expectations, setting a new low since December 2024. The year-on-year increase in core inflation (excluding food and energy) narrowed to 4.1%, indicating that the lag effect of the Fed's aggressive interest rate hikes has begun to appear. After the data was released, the market's probability of a rate cut in September rose from 35% to 45%, and the US dollar index fell 0.8% to around 103.5 at one point. Traders bet that the Fed may cut interest rates by 50 basis points in the second half of 2025, providing rebound momentum for non-U.S. currencies.
The ECB ends its negative interest rate policy and the euro is boosted
The ECB announces raising the deposit interest rate from -0.1% to 0%, ending the eight-year negative interest rate era. This is the 11th rate hike since July 2022, aiming to cope with energy price volatility and core inflation stickiness. In the policy statement, the ECB deleted the wording of "there may be further rate hikes in the future" and instead emphasized that "the interest rate path will be decided according to the data." Affected by this, the euro-dollar exchange rate jumped 0.6% to 1.0850, hitting a new high in the past two months.
China's monetary policy emphasizes exchange rate stability, and the implicit volatility of the RMB has dropped to a low level
The "Monetary Policy Implementation Report for the Second Quarter of 2025" released by the People's Bank of China clearly stated that it will "resolutely correct the market's pro-cyclical behavior and prevent the risk of exchange rate overshooting." The report also proposes to "improve the market-oriented interest rate formation and transmission mechanism, promote the decline of social xmtraders.comprehensive financing costs", and send a signal of stabilizing growth. Supported by policy expectations, the spot exchange rate of RMB against the US dollar stabilizedAround 7.18, the implied volatility in one month fell to a 17-month low of 3.2%, indicating that the market's concerns about the pressure on the depreciation of the RMB were eased.
Geopolitical tensions eased locally, and risk appetite rebounded
The Russian and Ukrainian leaders met in Alaska. Although no ceasefire agreement was reached, they agreed to establish a "military hotline" to avoid misjudgment. Concerns about disruptions in energy supply cooled, with Brent crude futures rebounding 1.2% from a two-month low of $65.79 per barrel. At the same time, the Special Representatives of the China-India border issue met with 10 consensuses to alleviate the risks of trade frictions in Asia. Improved risk appetite drives the broader strength of emerging market currencies, with the Korean won and Indian rupee rising 0.4% and 0.3% against the US dollar respectively.
2. Bad news
The British economy fell into a technical recession, and the British pound was under pressure
The UK's GDP fell by 0.3% month-on-month in the second quarter, with negative growth for two consecutive quarters, and confirmed a technical recession. Sub-item data showed that consumer spending fell by 0.5%, and xmtraders.commercial investment fell by 1.2%, the largest drop since the third quarter of 2024. Although the Bank of England kept interest rates unchanged by 5.25% in August, the minutes of the meeting showed that "most members believed that interest rate cuts need to wait for inflation to continue to fall below 3%. Affected by this, the pound fell 0.8% against the US dollar to 1.2450, a new low in the past three months.
Japan's core inflation was lower than expected, and the momentum of strengthening the yen weakened
Japan's core CPI (excluding fresh food) rose 2.1% year-on-year, lower than market expectations of 2.3%, slowing for the third consecutive month. Data reflects the inhibitory effect of falling energy prices and weak wage growth on consumption. Bank of Japan Governor Kazuo Ueda said in a policy statement that "there is no inflation currently dealing with lag risks", implying that the yield curve control (YCC) policy will not be adjusted in the short term. The yen exchange rate against the US dollar fell 0.5% to 145.80 under pressure, close to the intervention warning line set by the Japanese Ministry of Finance.
The US has imposed tariffs to steel derivatives, and RMB exports are under pressure
The US Department of xmtraders.commerce announced that it would include 407 types of steel and aluminum derivatives such as wind turbines on the tariff list, and the tax rate increased from 25% to 50%. This move directly impacts China's export of mechanical and electrical products to the United States, and is expected to affect the annual export volume of about US$8 billion. Strictly dragged down by concerns about escalating trade frictions, the offshore RMB exchange rate against the US dollar once depreciated by 0.3% to 7.2050, and demand for foreign exchange hedging for export-oriented enterprises surged.
The Middle East conflict continues to ferment, and risk aversion supports the US dollar and the Japanese yen
Israel launches air strikes on Yemen's Hodeidah Port, and the Houthi forces then launch hypersonic missiles at Israel. The escalation of geopolitical tensions has led to rising prices of safe-haven assets such as gold and US bonds. xmtraders.comEX gold futures broke through the $2,100/ounce mark, and the yield on the 10-year U.S. Treasury bonds fell by 2.7 basis points to 4.30%. The dollar index rebounds by safe-haven buying 0.4% to 10At 4.20, the yen exchange rate against the US dollar rose 0.2% to 145.30.
3. Preview of key events
The Federal Reserve announces the minutes of July meeting (02:00, Beijing time on August 21)
The market pays attention to the Federal Reserve's latest judgment on the inflation path and discussions on the time point of interest rate cuts. If the minutes of the meeting show that "most officials support the rate cut in September", the US dollar may weaken further; if the emphasis is on "inflation risks are still rising", it may strengthen hawkish expectations.
The final value of the core CPI in the euro zone in July (17:00, Beijing time on August 20)
The core CPI is expected to remain unchanged by 5.5% year-on-year. If the data is higher than expected, it may strengthen the European Central Bank's market pricing of "high interest rates to last longer", which is beneficial to the euro.
China's August LPR quotation (09:00, Beijing time, August 20)
The market generally expects that the 1-year and 5-year LPR will remain unchanged by 3.45% and 4.20% respectively, but it is necessary to pay attention to whether the policy statement sends a signal of "structural interest rate cuts".
4. Market sentiment and technical signals
Global financial market sentiment differentiates, and risky asset volatility intensifies
The three major U.S. stock indexes rose and fell on Tuesday, with the Nasdaq falling 1.46% to the largest single-day decline since April. The S&P 500 closed down 0.59%, and the Dow Jones Industrial Average barely closing down as Home Depot rose by more than 3%. The Panic Index VIX rose to 22.5, a record high in the past month, showing market concerns about valuation pullbacks in technology stocks and geopolitical risks. In contrast, the European STOXX600 index rose 0.69%, benefiting from the rebound of energy and bank stocks.
The US dollar index technology faces key resistance
The daily chart of the US dollar index shows that the price is suppressed by the 200-day moving average around 104.50, and the RSI indicator is overbought to above 70, and there is pressure to pull back in the short term. If it falls below the 103.80 support level, it may open up space for a fall to 103.00; on the contrary, if it stands firm at 104.50, it may test the 2025 high of 105.78.
5. Strategy recommendation
Euro/USD (EUR/USD)
In the short term, pay attention to the resistance range of 1.0850-1.0900. If the breakthrough is made, you can look to 1.0950; the support below is at 1.0780, and if it falls, it may fall back to 1.0700. It is recommended that day traders sell high and buy low in the range of 1.0800-1.0880, and set 30 points at each stop loss.
Dollar yen (USD/JPY)
BoJP policy has turned to expectations and if it falls below 145.50, it may accelerate downward to 144.00; the upper resistance is at 146.50, so you need to be wary of intervention risks. It is recommended that arbitrage traders gradually close long positions and turn to wait and see.
Australia dollar against US dollar (AUD/USD)
Backed by iron ore prices andSupported by national stability growth policy, the Australian dollar is expected to test the 0.6500 resistance against the US dollar. If the breakthrough is made, you can look to 0.6550; the support below is at 0.6400, so you need to pay attention to the release of China's August trade data (August 21).
Risk warning: Geopolitical conflicts, energy price fluctuations, and central bank policy adjustments beyond expectations may cause severe market fluctuations. Investors are advised to control their positions and strictly stop losses.
The above content is all about "【XM Forex】: Collection of positive and negative news that affects the foreign exchange market". It was carefully xmtraders.compiled and edited by the XM Forex editor. I hope it will be helpful to your trading! Thanks for the support!
Due to the author's limited ability and time constraints, some content in the article still needs to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues:
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