The US dollar index may continue to fall, and the market pays attention to the initial data of the US

On Thursday, the US dollar index hovered around 103.36. The Federal Reserve announced at its latest policy meeting that it would keep interest rates unchanged and hinted that interest rate cuts may be cut twice this year while slowing down the pace of balance sheet reduction. This series of measures has triggered a decline in the US dollar's gains and a decline in US Treasury yields, providing rising momentum for gold prices. This trading day requires attention to the Bank of England's interest rate resolution, changes in the number of initial unemployment claims in the United States, the United States' February existing home sales data and geopolitical situation related news.

Analysis of major currency trends

Dollar: As of press time, the U.S. dollar index hovered around 103.35, and on Wednesday, the U.S. dollar index (DXY) initially gained momentum around 104.00, maintaining a cautious stance in the face of changing inflation and economic conditions. The latest FOMC dot chart shows that decision makers expect the median interest rate for the current period to be 3.875%, lower than the previous 4.375%, further strengthening expectations for future interest rate cuts. Looking ahead, the Fed lowers its 2025 interest rate forecast to 3.375%, indicating that policy easing may occur due to slowing economic growth and rising inflation expectations. On the daily chart, the Fed's sentiment index is still in dovish territory, which seems to put pressure on the dollar. Technically, returning to 104.00 would mean that DXY stays within its range in March. If the bulls can avoid technical rejection here, it is expected to rise sharply to the integer mark of 105.00, where the 200-day simple moving average (SMA) converges and strengthens the area as a strong resistance level. Once the area is broken, a series of key levels, such as 105.53 and 105.89, will become resistance levels. On the downside, 103The integer mark of .00 can be considered a bearish target, and even 101.90 is not impossible if the U.S. yield falls after the Fed’s avatradescn.communication on Wednesday, if the market further abandons its long-term dollar holdings.

Euro/USD: The correction trend of the EUR/USD from its five-month high is also affected by the poor performance of the EUR relative to other currencies, in addition to the fight against the Australian dollar and New Zealand dollar. The euro remains down despite the German leader’s approval of a debt restructuring plan for possible Prime Minister Frederick Metz in the House of avatradescn.commons on Tuesday, aiming to stimulate economic growth and increase defense spending. From a technical point of view, the Relative Strength Index (RSI) is falling sharply and is now out of overbought. This suggests that the selling pressure may continue in the short term. Meanwhile, moving average convergence/divergence (MACD) shows a flat green bar, suggesting that bullish momentum may weaken. Support is now in the 1.0850 area and stronger demand is expected to occur around 1.0800. The upper resistance is at 1.0950, followed by 1.1000, which remains a key obstacle for the buyer.

GBP/USD:GBP/USD was still fixed at a recent high of nearly 1.3000 on Wednesday, with market sentiment being boosted by the Federal Reserve's insistence on its further rate cuts in 2025, although the rate cuts were later this year. Interest rate markets are still priced at the Fed's June meeting by another 25 basis points, with Fed Chairman Jerome Powell reiterating that the Fed's still strong growth and a healthy labor market support the U.S. economy. The Bank of England (BoE) will make its own interest rate decisions during the European market hours on Thursday. As the Bank of England is expected to keep interest rates unchanged for the time being, the spark in the market will be significantly reduced. Technically, GBP/USD continues to hover at the high end of recent price trends. Buying is still trapped near the main technical threshold of 1.3000, and the GBP/USD is expected to close higher for the third consecutive week. The pair traded at a four-month high, just one-third of the percentage point from its highest level since last October.

Summary of news from the foreign exchange market

1. The European Union issued a defense white paper to "ready in 2030

On the 19th, the European avatradescn.commission issued a defense white paper called "ready in 2030", hoping to enable Europe to have strong defense capabilities in 2030 by increasing investment in the defense industry, encouraging joint procurement, and increasing military production capacity. In a avatradescn.communiqué released on the same day, the European avatradescn.commission said that the defense white paper proposedThe EU member states have invested heavily in defense, purchased defense systems and long-term strengthened avatradescn.combat readiness for European defense industry, outlined the key actions to strengthen defense capabilities in the EU in the next few years, including: narrowing the gap in defense capabilities between member states; supporting the European defense industry by increasing aggregate demand and strengthening joint procurement; Europe and Ukrainian defense industry will be integrated deeper to support Ukraine; strengthening the EU-wide defense market; accelerating defense transformation through disruptive innovations such as artificial intelligence and quantum technology.

2. It may be appropriate for the Federal Reserve to end the balance sheet reduction in the middle of the year.

The Fed's interest rate meeting in the early morning of this morning is the rise in the current economy. The wait-and-see and balance are more obvious in response. Few people support at least two interest rate cuts this year. The unexpected slowdown in the balance sheet is also regarded by the authorities as a neutral measure of "time for space". Fed against the White House, the Fed still doesn't want to move first, and the price of falling behind the curve may be that it has to be more relaxed in the future. We believe that it may be appropriate for the Fed to end the balance sheet reduction in the middle of the year. If the ending of the balance sheet reduction is too late, the peak of corporate debt repayment encounters the risk of a significant tightening of liquidity when the Treasury rebuilds its TGA account. Speaking of recession, Minsheng Macro said that the Fed may want to see evidence of the deterioration of "hard data". Minsheng Macro believes that there are two subsequent policy paths: the cooling of inflation brings interest rate cuts, or the sharp economic deterioration brings interest rate cuts, both of which are possible.

3. Fed's Mickey Bucket: Recent economic data are mixed

"Fed's Mickey Bucket" Nick Timiraos: The Trump administration has introduced a series of policies that make it more difficult to predict economic growth and inflation. Measures to deregulate and lower energy prices may boost economic growth and keep inflation cooler. Recent economic data paint a mixed picture. Spending slowed, but hiring remained stable, with unemployment in February at 4.1%. In addition to food and energy projects, avatradescn.commodity prices have fallen for most of last year, making a meaningful contribution to the slowdown in inflation over the same period, but prices have risen recently. Michael Reid, senior U.S. analyst at Royal Bank of Canada, said the Fed could "be in an increasingly difficult situation, as on the one hand there are signs that the job market is slowing, although many data will not be immediately apparent in the employment report. "On the other hand, tariffs may cause inflation data to rise for the rest of the year.

4. The euro zone inflation was lower than expected last month. The sluggish growth replaced inflation as a focus.

The euro zone inflation was lower than expected last month. This further showed signs of a cooling of the economy as policymakers consider further relaxation of interest rates. Data shows that prices in February rose year-on-yearThe rise of 2.3%, lower than the initial value of 2.4%, also means that the annual inflation rate has slowed significantly from 2.5% at the beginning of the year. European Central Bank President Lagarde warned at the bank's meeting this month that U.S. tariff policies are creating "huge uncertainty" that is more severe than the economic turmoil caused by the new crown epidemic. The ECB has repeatedly lowered its expectations for euro zone GDP growth, and it is currently expected that the euro zone economy will grow only 0.9% this year, far lower than the United States, and weak economic growth has become the primary focus of the ECB. The ECB Management avatradescn.committee Renne said this week that the deteriorating trade background could mean interest rate makers choose to cut borrowing costs further.

5. Analysts: Bank of England's voting opinions may be hugely divergent.

Geoff Yu, EMEA market strategist at Bank of England (BNY), said in a report that the voting differences in the Bank of England's interest rate decision on Thursday may once again show a different view on the economy, but bank interest rates are expected to remain at 4.50%. He pointed out that the overall growth prospects in the UK are problematic given the continued rise in fiscal pressures. Just in January this year, the UK's domestic economy was still shrinking. He said changes in the outlook will require large-scale policy offsets in due course. "In view of the fluctuations in external policies, the Bank of England may reiterate its 'prudent' position, but the focus in the near future will now turn to fiscal plans at the end of the month."

Institutional View

1. China Merchants Macro: The Federal Reserve suspended interest rate cuts but implied that the pace of interest rate cuts is hawkish.

China Merchants Macro Research Report stated that overall, the Federal Reserve suspended interest rate cuts at this meeting but implied that the pace of interest rate cuts is hawkish. Although Taper guidance was given, the possibility of suspending or slowing down the balance sheet was proposed in the minutes of the January meeting. Looking back at the two rounds of QTTaper in May 2019 and May 2024, both occurred in the stage of high debt pressure in the United States and tight financial conditions. At that time, the US stock market had certain adjustment pressure. Therefore, we believe that this round of Taper also played a role in soothing market sentiment and alleviating debt pressure to a certain extent. Between strong hard data (GDP, employment) and weak soft data (economic, inflation survey expectations), Powell clearly prefers to believe the former and says tariffs will slow down the pace of inflation downturn, which itself suggests the hawkish position. Looking back, it is likely that interest rate cuts will continue to be suspended in May, but Powell repeatedly emphasized uncertainty, which means that actions may be accelerated after the implementation of tariffs and other policies.

2. Goldman Sachs: The correction of the Fed's economic forecasts tastes a bit like "stagflation".

Whitney Watson, global co-head of Goldman Sachs Asset Management, said that as expected, the Fed adopted a cautious tone at its meeting this month, staying the same as waiting for the clarity of economic growth prospects and trade policy changes. The correction to the FAP member’s forecasts feels a bit like “stagflation” because the forecasts for growth and inflation are in the opposite direction. Currently,The Fed is on the wait-and-see state as it is watching whether the recent slowdown in economic growth will develop into a more serious problem.

3. Panson Macro: UK inflation may exceed Bank of England expectations

Penson Macro analysts Wood and Jordan Dock wrote in a report to clients that inflation in the UK may exceed policy makers' expectations last month. The bank expects that the annual inflation rate for February, which will be announced next week, should be stable at 3.0%, meaning inflation is higher than the Bank of England's forecast for slowing price gains last month. Strong food and core avatradescn.commodity inflation should prevent overall inflation from falling, analysts said. Economists warn that the Bank of England’s desire for a gradual slowdown in potential inflation may not avatradescn.come true in the future. Currently, the market generally expects the Bank of England to keep the benchmark interest rate unchanged at 4.50% on Thursday.

The above content is all about "[Ihua Foreign Exchange Platform]: The US dollar index may continue to fall, and the market pays attention to the initial data of the United States". It was carefully avatradescn.compiled and edited by the Avatrade Foreign Exchange editor. I hope it will be helpful to your trading! Thanks for the support!

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