As U.S. economic data increasingly indicates moderate inflation and slowing economic growth, the market generally expects the Federal Reserve to announce a 25 basis point rate cut at next week's meeting. The dollar index fell after three consecutive days of gains, with non-U.S. currencies generally rising. Major currencies such as the euro, yen, offshore yuan, and won have all appreciated, shifting market sentiment from cautious to optimistic.
Federal Reserve Rate Cut Expectations Intensify, Market Focus Shifts to CPI Data
According to market swap pricing, the probability of the Federal Reserve cutting rates by 25 basis points next week has exceeded 80%. Although economic data generally shows that U.S. inflation and economic growth are slowing, the market still pays close attention to the forthcoming November Consumer Price Index (CPI) data. The CPI for November is expected to rise 2.7% year-on-year, slightly higher than the previous month's 2.6%. This data will have a significant impact on the Federal Reserve's decision-making, especially in terms of future monetary policy expectations.
Analysts suggest that if the CPI data meets market expectations, investors will further solidify their confidence in the Federal Reserve’s rate cut, viewing the 25 basis point cut as almost "a done deal." Conversely, if CPI data exceeds expectations, it might provoke more questions about whether the Fed will continue to cut rates, affecting the dollar's trajectory.
Dollar Index Retreats, Non-U.S. Currencies Rise Across the Board
Influenced by heightened expectations of a rate cut, the dollar index (DXY) ended its previous three-day rally, standing still at 104.56. Meanwhile, the euro-dollar exchange rate rose to 0.9489 in the day's trading, and the offshore yuan against the dollar also strengthened, standing at 7.2485. The yen-dollar exchange rate broke through the 151.6 mark, showing a notable rebound.
The performance of the yen, in particular, drew market attention. The yen's rise against the dollar reflects investors' reactions to rate cut expectations, with the belief that a rate cut may alleviate concerns about the persistent strength of the dollar in global markets, thereby boosting currencies like the yen. Meanwhile, the won-dollar exchange rate saw a slight increase to 1429.87.
CPI and PPI Data to Be Pivotal in Market Decisions
Although the market widely anticipates a Fed rate cut at next week's meeting, investors remain somewhat cautious regarding this week's CPI and PPI data. These data releases will provide more direct guidance for the Federal Reserve’s decisions, particularly against the backdrop of inflation trends and slowing economic growth. CPI is not expected to increase significantly beyond expectations, which implies a high likelihood of a Fed rate cut, but if the data falls short of expectations, it may influence market expectations of a rate cut.
For the global market, the direction of U.S. monetary policy remains critically important. As the global economy faces uncertainty, investors will closely monitor the Fed's monetary policy adjustments and their impact on international markets. If the rate cut decision proceeds smoothly, it might further stimulate the demand for global risk assets and serve as a reference for other central banks' policy adjustments.
