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As disagreements over interest rate cuts tear the market apart, may funds begin to flee?
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Hello everyone, today XM Forex will bring you "[XM Official Website]: Interest rate cut differences tear the market apart, may funds begin to flee?". Hope this helps you! The original content is as follows:
Tuesday, November 18th. Global financial markets continued the cautious atmosphere last Friday at the beginning of this week, with risk assets generally under pressure and U.S. stock market futures continuing to fall, reflecting the market's reassessment of the balance between economic growth prospects and the path of monetary policy. The U.S. dollar index is currently at 99.5866 during the European session. Although it has rebounded from the previous day, it is still operating within the recent shock range.
Although some Federal Reserve officials have released signals of caution about interest rate cuts, which has supported the short-term performance of the U.S. dollar, differences in internal policy stances are gradually emerging, triggering extensive market discussions on whether the U.S. dollar's subsequent trend has sustained momentum. Currently, the U.S. dollar index is in a critical observation period - it is not only affected by changes in interest rate expectations, but also faces multiple tests from labor market data and fluctuations in global macro sentiment.
The discussion surrounding the future policy direction of the Federal Reserve has heated up again recently. A number of Fed officials gave speeches last Friday, and their positions were clearly divided. Federal Reserve Vice Chairman Philip Jefferson emphasized that interest rates should be cut at a slower pace when the interest rate is close to the neutral level. This statement was interpreted by the market as a hawkish signal, boosting US dollar buying sentiment in the short term. At the same time, the steepening trend of the U.S. Treasury yield curve continues, especially the slight rebound in the two-year Treasury yield, reflecting the increasing market expectations that short-term interest rates will not fall quickly. It is worth noting, however, that not all decision-makers share the same view. Federal Reserve Board Governor Christopher Waller made it clear that the U.S. labor market has shown signs of weakness, with employment growth almost stagnant, and job vacancy and turnover rates continuing to fall. These indicators collectively point to weakening corporate labor demand rather than shrinking labor supply. Based on this, he arguedAt the interest rate meeting on December 10, the federal funds rate was further lowered by 25 basis points. The current market pricing probability of this move is about 45%, indicating that traders are still hesitant about this move. This inconsistency in opinions within the central bank reduces the certainty of the interest rate path, which in turn affects the attractiveness of U.S. dollar assets.
In addition, the latest labor market forward-looking indicators also provide evidence for the slowdown in economic momentum. Preliminary data on the four-week average ADP private sector employment released last week showed that xmtraders.companies lost about 11,250 net jobs per week in the week ended October 25. This is the first time since last year that there have been four consecutive weeks of negative growth, indicating that the willingness to recruit in the private sector has cooled significantly. At the same time, the number of people continuing to apply for unemployment benefits in the week ending October 18 increased month-on-month. Although the absolute value is still lower than the historical high, it is higher than the same period in 2023 and 2024, suggesting that the cycle for job seekers to find new jobs is lengthening. This series of data together paints a picture of a marginal weakening of the labor market, weakening the basis of the previous optimistic narrative of a "soft landing." Against this background, if the upcoming official non-farm payrolls report fails to show a strong recovery, it may further strengthen market expectations that the Federal Reserve will accelerate the pace of easing, thereby putting downward pressure on the dollar. At the same time, the final value of August factory orders and September international capital flows (TIC) data will also be announced today. Although the impact is relatively limited, it may still trigger short-term fluctuations in a trading day that is not driven by major events.
An in-depth analysis of the current market logic shows that the trend of the US dollar is at a critical stage of a multi-factor game. On the one hand, some Federal Reserve officials' cautious attitude towards the pace of interest rate cuts has provided phased support for the US dollar; on the other hand, there is increasing evidence of structural weakness in the labor market, coupled with easing inflationary pressures, opening a window for continued easing in the xmtraders.coming months. Such contradictory signals make it difficult for the market to form a unilateral consensus, and capital flows appear to be in a see-saw state. Institutional position data shows that the net long position of leveraged funds in the U.S. dollar has not expanded significantly, indicating that professional traders are not willing to chase the current price increase. On the contrary, the options market's implied volatility increased modestly and risk reversal indicators tended to balance, reflecting that the market is beginning to prepare for uncertainty about the policy path. In the xmtraders.coming period, traders may continue to pay attention to changes in the frequency and wording of Fed officials' speeches, especially the statements of those members who have voting rights or are regarded as potential chairman candidates, which will become an important variable affecting market sentiment.
Looking to the future
Whether the U.S. dollar index can break through the current shock range depends on the performance of several key data. The first is the soon-to-be-released preliminary estimate of ADP employment. As the last important reference indicator before non-agricultural employment, the results will directly affect the market's judgment on the health of the labor market. If the data continues to show that job losses are expanding, expectations of interest rate cuts may accelerate, suppressing the performance of the dollar. Secondly, many Federal Reserve officials will speak out one after another this week, including Governor Michael Barr and Richmond Fed President Thomas Barkin.The xmtraders.comments may further reveal the real differences within the xmtraders.committee on the economic outlook and policy stance. In addition, the evolution of the global geopolitical situation, the coordination of central bank policies in major economies, and the trend of cross-border capital flows will also affect the relative value positioning of the U.S. dollar in the medium term. It is worth noting that the current pace of global economic recovery is uneven, and some developed economies are facing the coexistence of sluggish growth and fiscal pressure. This may result in the U.S. dollar's role as a settlement and reserve currency remaining resilient in the short term, but whether its long-term dominance is sustainable still requires observation of structural changes.
To sum up, the U.S. dollar index is currently operating in a stage where the long and short forces are relatively balanced. Although it has been supported by some hawkish xmtraders.comments in the short term and has stayed above 99.50, the fundamental support is not solid. In particular, if the weakening trend of the labor market is confirmed, it will shake the market's confidence in the Federal Reserve's delay in cutting interest rates. At the same time, divergence in policy stances within the central bank has increased the unpredictability of policy paths, making traders more reliant on data guidance rather than a single narrative.
The above content is all about "[XM Official Website]: Interest rate cut differences tear the market apart, may funds start a great flight?" It is carefully xmtraders.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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