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The dollar is shaking, and global central banks are walking tightrope
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: The US dollar is shaking, and the global central banks are walking a tightrope." Hope it will be helpful to you! The original content is as follows:
On April 23, during the trading session of the Asian market on Wednesday, the US dollar index broke through the 99 mark and rebounded slightly
As the dollar weakened, central banks around the world are carefully walking the tightrope - whether to depreciate the local currency.
Recently, U.S. policy uncertainty has led investors to sell the US dollar and U.S. bonds. The U.S. dollar index has fallen more than 9% this year, and analysts believe there is still room for downside in the future. For other currencies, this decline not only brings some breathing space but also brings a lot of trouble.
The weakening of the US dollar has caused other currencies to appreciate relatively, especially safe-haven assets such as the Japanese yen, Swiss franc and the euro. According to LSEG data, the yen has appreciated by more than 10% against the US dollar since the beginning of the year, with the Swiss franc and the euro also rising about 11% respectively. In addition, the Mexican peso rose 5.5%, the Canadian dollar appreciated by more than 4%, the Polish zloty rose by more than 9%, and the Russian ruble rose by more than 22% against the US dollar.
Nevertheless, for most central banks, the weakening of the dollar is overall good news. "Most central banks are happy to see the dollar depreciate by 10%-20%," because the strength of the dollar has been a major source of pressure for countries, especially those economies that are pegged to or rely on the dollar.
In particular, many emerging market countries have a large amount of debt denominated in US dollars, and a weaker dollar can reduce the debt burden. In addition, strengthening the local currency and weakening the US dollar will also make imported goods relatively cheap, thereby reducing inflation and providing room for the central bank to cut interest rates and stimulate economic growth.
Button said the recent decline in the US dollar has provided more "respite" for central banks to cut interest rates.
However, the goodsThe depreciation of the currency is far more than just a positive side. Thomas Rupf, head of Asian investment at VP Bank, pointed out that although the appreciation of the local currency can curb inflation through import price cuts, export xmtraders.competitiveness may be damaged in the face of a new round of US tariffs, especially for Asia, which is a global manufacturing center.
Nick Rees, head of macro research at MonexEurope, said emerging markets, especially Asia, are more likely to use currency depreciation as a positive policy option in the current environment.
Asian Market
The latest data released by JudoBank and S&PGlobal on Wednesday showed that the initial value of the Australian Judo Bank manufacturing Purchasing Managers Index (PMI) fell from 52.1 in March to 51.7 in April.
Judo Bank Australia Services Purchasing Managers Index (PMI) fell from its previous value of 51.6 to 51.4 in April, while the xmtraders.comprehensive Purchasing Managers Index (PMI) in April fell from its previous value of 51.6 to 51.4.
European Market
European Central Bank President Christine Lagarde spoke during the spring meetings of the International Monetary Fund (IMF) and the World Bank, calling for constructive negotiations to resolve the growing U.S.-European trade tensions.
When talking about the recent escalation of tariff threats by U.S. President Donald Trump, Lagarde expressed optimism that there is still room for dialogue.
"The nature of policy makers is to sit down and argue their views," she said, adding that determining the “red line” and “fragility” of both sides is crucial for any successful outcome.
Lagarde refuted Trump's claim that the EU treats the United States unfairly in trade, especially because of the EU's xmtraders.commodity surplus. She stressed that transatlantic economic relations are much more xmtraders.comprehensive, not just limited to xmtraders.commodities, but also services and large flows of FDI. She suggests that a broader context should not be lost by current tariff rhetoric.
While acknowledging that some industries may require difficult discussions, Lagarde stressed the importance of xmtraders.common economic interests. “There are so many xmtraders.common interests,” she notes, highlighting the need for “dull, serious work” to find acceptable xmtraders.compromises.
The latest ECB second-quarter professional forecaster survey shows that inflation expectations have slightly increased, indicating that price pressures throughout the euro zone continue to exist.
The overall HICP inflation rate is currently expected to be averaged 2.2% in 2025, and then drop to 2.0% in 2026 and 2027. These figures reflect an increase of 0.1% in 2025 and 2026. The data for 2027 remain unchanged.
Core inflation rates, excluding energy and food, have also been slightly raised in all ranges, and are currently expected to be 2.3% in 2025 (previously 2.2%) and 2.1 in 2026 and 2027% (formerly 2.0%).
The long-term expectations for overall inflation are still anchored at 2.0%, and the core inflation expectations have risen slightly from 1.9% to 2.0%.
In terms of growth, the outlook has been slightly lower in the short term. Real GDP is expected to grow by 0.9% and 1.2% in 2025 and 2026, both down -0.1% from the previous survey, and then rebound to 1.4% in 2027. Long-term growth expectations remain unchanged at 1.3%.
U.S. market
Tariffs-①Fox News: The US Treasury Secretary is busy negotiating trade agreements with Japan, South Korea, Australia and India, but it is reported that the agreement will not be reached soon. Vance, who visited India, has become the "main executor" of trade negotiations. ② White House: 18 trade agreement proposals have been received and a trade team meeting will be held with 34 countries this week. Trump hopes the US dollar maintains its global reserve currency status ③ US media: The White House has reached a tariff agreement with Japan and India, but it may take several months to finalize the final agreement ④ Sources said that Trump is considering reducing US drug prices to international levels ⑤ Sources revealed that the United States will strive to prompt the UK to cut automobile tariffs from 10% to 2.5%, and will urge the UK to relax agricultural import regulations.
Federal-Kashkali: ① Tariffs will cause inflation expectations to get out of control, no longer a trade deficit means the United States is no longer the best place to invest ② US federal funds futures fell, and the December contract fell by 9 points, implying that the Fed will cut interest rates by 80 basis points by the end of the year.
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