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Hello everyone, today Avatrade Aihua Foreign Exchange will bring you "[Aihua Foreign Exchange]: The US dollar further weakens, and the market is waiting for US inflation data." Hope it will be helpful to you! The original content is as follows:
On the Asian session on Monday, the US dollar index hovered around 103.60, and the US dollar is now in a free fall state. Expectations of multiple interest rate cuts by the Federal Reserve and growing economic uncertainty have driven capital outflows. This week will also usher in the US February CPI data, and next week, the Federal Reserve's interest rate decision will be usher in. Investors need to pay attention to changes in market expectations. In addition, this week, closely monitor Trump's tariff policies, the situation in Russia and Ukraine, and the mineral agreement between the United States and Ukraine.
Analysis of major currencies
Dollar: The US dollar index continued to decline in the Asian session on Monday, with the focus of market attention on the upcoming Federal Reserve meeting. Cieszynski said the Fed's forecast and non-farm jobs data will be key drivers. In addition, inflation reports and retail sales data will also provide more clues to the market. Although the Fed may remain a wait-and-see attitude, there is uncertainty about the impact of tariff policies on the dollar and the economy. Technically, the US dollar index (DXY) fell into a deep sell-off, falling below 104.00 and returning to its lowest level since 2024. The 100-day and 104-day Simple Moving Averages (SMA) have now confirmed bearish crossover, strengthening the negative momentum. The Relative Strength Index (RSI) indicates an oversold situation, indicating a potential short-term rebound, but the MACD remains in a bearish area, indicating a sustained downside risk.
1. Powell talks about tariffs and inflation: The Federal Reserve "brakes with static measures" and there is no rush to cut interest rates
Feder Chairman Powell said at the New York Economic Forum last Friday (March 7) that the Trump administration's tariff plan may push up inflation, but its impact still needs to be observed. He stressed that the Fed should not rush to cut interest rates before getting more information, but should keep a wait-and-see attitude. Powell's remarks highlight the Fed's cautious stance in the current avatradescn.complex economic environment,This also provides the market with important clues about the future direction of monetary policy.
Powell pointed out that it remains to be seen whether the Trump administration's tariff plan will trigger sustained inflation. He said that if the tariffs were just a one-time event, the Fed would not need to respond by tightening monetary policy. However, if tariffs evolve into a series of events and cause inflation to continue to rise, the Fed will have to take action. Powell stressed that the key lies in whether long-term inflation expectations will change and the durability of the inflation effect. He also mentioned that the Fed needs to take into account the current economic background, including the inflation level that has not yet fully returned to the 2% target.
2. The Iraqi Prime Minister and the US President’s Assistant on National Security Affairs spoke on the phone to discuss strengthening cooperation.
On the evening of March 9, local time, according to a statement from the Iraqi Prime Minister’s Media Office, Iraqi Prime Minister Sodani spoke on the phone with the US President’s Assistant on National Security Affairs Waltz on the same day, and the two sides focused on discussing bilateral economic and security cooperation between the two countries. Waltz reiterates that the United States firmly supports Iraq's security and stability. The two sides stressed the importance of ongoing cooperation to safeguard Iraq's sovereignty and long-term stability, especially in the context of the current turbulent regional situation. Waltz said the U.S. failure to extend Iraq's immunity to purchase electricity from Iran is part of its "extreme pressure" policy against Iran.
3. Japan's current account deficit for the first time in two years
The Japanese Ministry of Finance said on Monday that Japan's current account deficit in January was 257.6 billion yen (US$1.7 billion), the first deficit in two years due to increased imports. According to a preliminary report from the Ministry of Economy, Trade and Industry, Japan's avatradescn.commodity trade experienced a deficit of 2.94 trillion yen. Exports rose 2.1% year-on-year to 7.50 trillion yen, while imports rose 17.7% to 10.44 trillion yen. Among other key avatradescn.components, the main indicator reflecting Japan's revenue from overseas investment is 3.60 trillion yen, an increase of 20.5% over the previous year.
4. Weak employment data. Canada can easily cut interest rates by another 25 basis points.
Canada is one of the main tariff targets of US President Trump, which makes Canadian data and events attract more attention than before. The Bank of Canada will announce its interest rate decision on Wednesday. The likelihood of a rate cut appears to be growing as Canada's job data weak in February (even before tariffs are implemented). "Enterprise speed slowed even before tariffs were implemented, allowing the Bank of Canada to easily cut interest rates by another 25 basis points," economists at DesjardinsGroup said in a report.
5. Expectations of investment banks to cut interest rates by ECB
Investors will continue to think about the impact of Germany's massive fiscal stimulus plan and the impact of Germany's plan to increase defense spending in the avatradescn.coming week. Germany's large-scale fiscal stimulus plan has led to a sharp rise in German government bond yields. Investors are particularly interested in how fiscal expansion will affect economic growth and inflation in Europe and how this will affect the ECB’s currencypolicy. Vanguard and Alliance Bernstein have already expected the ECB to cut interest rates by less than 2.50% this week. Vanguard is currently expected to cut interest rates only once this year, while AllianceBernstein's forecast for the ECB's policy rate correction at the end of 2025 is 2%, higher than the previous estimate of 1.75%.
Institutional View
1. Institutions: Weak employment data "great the green light" for the Bank of Canada's interest rate cuts
Economists at the Canadian financial services agency Desjardins Group said that weak employment in February provided a "easy pass" for the Bank of Canada to lower its policy interest rate next week. Prior to February, the country's economy added more than 200,000 jobs in the first three months. In February, net employment increased by only 1,100, and the unemployment rate remained unchanged at 6.6%. "Even before the tariffs were implemented, the slowdown in recruitment gave the Bank of Canada an opportunity to cut interest rates by another 25 basis points," the avatradescn.company said, adding that trading in the overnight index swap market showed that the likelihood of a rate cut was about 90%.
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