The short-term weakness of the US dollar hides variables, with data 'bottlenecks' and interest rate cut doubts dominating the market direction

📊 Government reopening ignites data games, intensifying the hawkish-dovish competition of the Federal Reserve and increasing fluctuations in the exchange market

1. Current market core drivers: Risk aversion sentiment recedes, data concerns pressure the US dollar

The US dollar exchange rate has recently fallen slightly, with the core logic being that after the end of the US government shutdown, the market's soft expectations for the backlog of economic data have heated up. With the temporary funding bill in place, the interrupted official data will gradually resume publication, but the specific timetable has not yet been clarified. Traders are pre-adjusting their positions to cope with potential fluctuations, leading to short-term pressure on the US dollar. It is noteworthy that during the shutdown, the US dollar achieved the second-best monthly performance of the year due to its safe-haven properties. Now, as the risk aversion sentiment recedes, the fundamental data has become the key anchor point for the exchange rate trend.

II. Key Variables: The “data dam” and the mystery of the Fed's December rate cut

1. The shock effects of concentrated data releases: Danske Bank predicts that before the December Fed rate decision, three employment reports and two inflation data releases may be published in quick succession. The intensive data disclosure will directly affect the market's assessment of the resilience of the U.S. economy. If the data shows weakness, it may restart expectations for a December rate cut, further suppressing the dollar; if the data shows resilience, it may boost the dollar's rebound.

2. The internal divisions within the Federal Reserve have intensified: several Federal Reserve officials have recently released cautious signals. Boston Fed President Collins emphasized that the threshold for further rate cuts is “quite high,” while Atlanta Fed President Bostic warned that inflation risks are more urgent. Meanwhile, dovish officials believe that current interest rates are too high, creating rare internal divisions that increase policy uncertainty. As of now, CME's “FedWatch” shows a 59.4% probability of a 25 basis point rate cut in December, with a 40.6% probability of maintaining the current rate, indicating a cautious market pricing.

III. Institutional Outlook: The Dollar's Prospects Amidst Long and Short Speculation

• Bullish Camp: Danske Bank and Royal Bank of Canada believe that if subsequent employment and inflation data confirm the resilience of the U.S. economy, the Fed may abandon the December rate cut, combined with the relative advantages of U.S. growth, the dollar is likely to regain upward momentum.

• Bearish Camp: Dutch Bank ING and Canadian Imperial Bank of Commerce point out that the labor market has shown signs of localized weakness. If data falls short of expectations, the market may reprice rate cut expectations, coupled with a retreat in risk aversion, the dollar may face further downward pressure.

• Volatility Warning: Wells Fargo and Morgan Stanley indicate that the uncertainty of the data release rhythm and the divisions in Fed policy will elevate dollar volatility, and the forex market may maintain a wide fluctuation pattern in the short term.

IV. IELTS Sister's Viewpoint: Focus on data validation and seize trading opportunities amidst volatility

The current dollar trend has entered the “data validation period.” In the short term, focus on the first batch of resumed employment data releases (especially non-farm employment) and core PCE inflation data. These two indicators will directly impact the Fed's policy inclination in December. For the cryptocurrency market, dollar fluctuations will influence asset pricing through risk appetite. If the dollar weakens, it may provide temporary liquidity support for cryptocurrencies; if the dollar rebounds, caution should be exercised regarding the pressure on risk assets. It is recommended to maintain flexible positions, adjust strategies based on data, and avoid blindly chasing highs or bottom fishing.

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