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The Federal Reserve refuses to be a "savior", global central bank policy differentiation intensifies under the dark clouds of trade war
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Platform]: The Federal Reserve refuses to be the "savior", and the policy differentiation of global central banks intensifies under the dark cloud of the trade war." Hope it will be helpful to you! The original content is as follows:
Due to the Easter holiday this week, although the foreign exchange market is still trading on Friday, the trading volume is light, and the US dollar is still in a weak situation this week. After falling below the 100 mark last week, it repeatedly tested and returned to above the 100 mark this week, but the pressure is high. The trade war has led to the continued loss of confidence in the US dollar as a safe-haven asset. However, after the US dollar fell sharply last week, the decline slope converged this week, and rebounded slightly as the weekend approached, showing a deep rebound.
The market atmosphere is prudent, and the main themes that affect market conditions include tariff uncertainty, progress in negotiations between the United States and trading partners, and conversations between major central bank officials.
In terms of tariff uncertainty, after the United States announced some tariff exemptions last Friday, President Trump claimed on Sunday that he would announce the tariff rate on semiconductor imports this week. However, before most of the U.S. financial markets were closed on Friday due to the Easter holiday, Trump has not made any statement on related issues.
Bill Northey, senior investment director of Wealth Management at Bank of America, said: "The market is still digesting the changing details of tariff implementation, so the uncertainty faces of investors, businesses and consumers are still very high. xmtraders.companies are beginning to mention the impact of tariffs and the general negative impact of this uncertainty."
As the market is in chaos due to Trump's tariffs, all walks of life expect the Fed to continue to play the final savior, but Fed Chairman Powell said this week that there is no possibility of "the Federal Reserve bottoming out." He said, "The market is digesting what is happening now, and the market is facing a lot of uncertainty, so it is accompanied by volatility. That being said, the market is still operating normally, in order, and the situation is basically in line with expectations."/p>
In terms of monetary policy prospects, Powell said the Fed will wait for more data on the direction of the economy to be released before deciding whether and how to adjust interest rates. He said Trump's tariff plan is a "fundamental change" and it is difficult for xmtraders.companies and economists to find historical experiences to learn from.
Sam Stovall, chief investment strategist at CFRAResearch, said Powell confirmed that investors have been worried about that tariffs could lead to slowing economic growth and more stubborn inflation. This basically shows that the situation is still inconclusive. Powell also said that he should not rely on "Feder put options", which means: Don't expect the Fed to help us get out of our predicament. This may imply "we really don't have a safety net."
Trump expressed dissatisfaction with Powell's remarks this week, accusing Powell of not cutting interest rates as "playing with politics", claiming that he has the right to "quickly" dismiss Powell. Powell's term will end in May 2026. He has said he intends to do his term and said that if Trump wants him to step down, he will refuse. If Trump really intends to drive Powell away, it will definitely cause the financial market to fall into turmoil again. Some media reported that US Treasury Secretary Bescent has repeatedly advised not to fire Powell, saying that this move may undermine the stability of the financial market. However, there are also reports that Trump discussed replacing Powell with former Federal Reserve Director Valsh and taking over by Valsh, but Valsh advised Trump to allow Powell to xmtraders.complete his term without interruption.
EvercoreISI Vice Chairman Krishna Guha said in a report: "If the threat to Fed independence suddenly becomes concrete, it will not only aggravate market pressure, but will also turn it to a more stagflation direction, and the tail risk will increase sharply."
In terms of trade negotiations, senior officials from Europe and Japan held talks with the US side this week. In terms of talks with Japan, the market originally expected that the Japanese yen exchange rate would become one of the directions of pressure on the US side, causing the US dollar to fall to a seven-and-a-half-month low. However, Japanese negotiator Ryo Akazawa was xmtraders.coming to clarify that the trade negotiations did not discuss exchange rate issues, which led the US dollar to rebound from a low of nearly 1 yen.
Bank of Japan Governor Kazuo Ueda said on Friday that if potential inflation accelerates to approach the 2% target as scheduled, the Bank of Japan will continue to raise interest rates.
But Kazuo Ueda told Japanese congressmen that given the uncertainty over the impact of U.S. tariffs, the Bank of Japan will carefully review whether the economic trend meets its forecast without a preset position.
The Bank of Japan will hold a monetary policy meeting from April 30 to May 1 and announce its economic forecast. Consumer inflation in Japan rose in the last month, partly due to a sharp rise in rice prices. Continuing high inflation supports the Bank of Japan's position of further interest rate hikes, but the US tariff policy has cast a shadow on the economic outlook, making monetary policy more xmtraders.complicated.
In terms of European and American consultations, EU Trade Executive xmtraders.committee Member Sevchovich said after meeting with U.S. Secretary of xmtraders.commerce Lutnik and Trade Representative Greer in WashingtonIt said that the EU is seeking to reach a fair tariff agreement with the United States and requires joint efforts from both sides.
Italian Prime Minister Meloni, who visited the United States this week, said with Trump that he believed that the United States and Europe could reach a trade agreement before the end of the 90-day moratorium on some tariffs. In terms of negotiations between the United Kingdom and the United States, US Vice President Vance claimed in an interview with the media that the British and American governments are working closely together, and that Trump's love for the United Kingdom and its royal family will help reach a "great agreement."
The euro closed up at 1.1389 against the dollar on Friday, and the European Central Bank announced this week that it would cut its benchmark interest rate by 25 basis points to 2.25%, the seventh rate cut in a year and has cut borrowing costs to its lowest level since the end of 2022. The yield on the German two-year Treasury bond, which is very sensitive to the ECB's interest rate expectations, fell to 1.671% from about 1.81% before the resolution was announced. The yield fell 8 basis points late in the trading session, nearing its lowest point since the end of 2022.
The bank warned that economic growth would be severely hit by U.S. tariffs, which drove markets to increase bets on the ECB's further easing policy in the xmtraders.coming months. Affected by this, the euro showed a pullback, away from the three-year high that it hit last week.
ECB President Lagarde said in a press conference: "The downside risk of economic growth has increased. The serious escalation of global trade tensions and related uncertainties may reduce growth in the euro zone by curbing exports and may lead to a decline in investment and consumption." She also noted that the euro's recent strengthening as the dollar fell, which may push down inflation by reducing import costs.
Unknown sources said the ECB is still very likely to cut interest rates in June, and only if the trade tensions eased significantly can they be persuaded to suspend interest rate cuts.
Dutch International analyst Carsten Brzeski pointed out, "Everyone should know that just interest rate cuts do not protect the eurozone economy from the current historic changes and challenges. We believe there will be more rate cuts in the future."
The latest price of the money market for major interest rates by the European Central Bank by the end of the year is about 1.57%, a sharp drop from 1.71% before the resolution was announced.
The pound hit a new high against the dollar this week to 1.3298 since early October last year, with economic data showing that UK economic growth remained stable, inflation slowed and wage growth strong, although job openings decreased before employer tax hikes this month.
Economic data released in the past week have eased concerns about the British economy amid the backdrop of US tariffs. Before the Easter holiday, trading volume and volatility were low, with the UK market closed on Friday and next Monday due to the Easter holiday. Coupled with expectations of a possible trade deal between the United States and Britain and the weakening of the dollar, the resilience of the British economy helped the pound rise.
Traders currently expect interest rates to be cut by about 85 basis points by the end of the year, and are generally expected to make their first rate cuts in the xmtraders.coming months. By December, the possibility of further rate cuts is more than 50% because of inflationThe slowdown could give the Bank of England greater flexibility to support the economy and households as trade uncertainty persists.
From the perspective of the entire market, the market is mainly waiting for tariff responses from major economies. Trump's attitude eased on Friday. Trump said he would not raise tariffs further, "I don't want to raise them any more. If it raises them, consumers will stop buying (these goods). Maybe I won't raise them any more, maybe even below their level or lower. Because I want people to continue buying." He also expects to reach a tariff agreement within a month.
White House Economic xmtraders.commission Director Hassett said a series of actions will be taken next week on trade issues. When the deal is xmtraders.completed, U.S. President Trump will meet them in person.
Fruit’s global foreign exchange director in New York said: “We are now a little bit of an information vacuum because of the deadlock in tariffs, and we are waiting for what agreements to xmtraders.come to with other countries. Some major countries may announce deals, which will provide at least one framework for the U.S. government’s tariff policy.”
Looking forward to the xmtraders.coming week, the data will be particularly light, but the latest local PMIs and consumer confidence indexes may show the initial impact of the latest trade war on business operations and consumer confidence. The G20 Finance Ministers and Central Bank Governors Meeting, as well as the IMF/World Bank Spring Meeting, will be the venue for major countries to discuss the latest economic situation. It is expected that the conversations of major financial giants will become the focus of the financial market by then. In addition, the Federal Reserve's Economic Beige Book also needs attention.
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