A violent rebound in the US dollar? Trading opportunities amidst the "siege" of multiple central banks
2025-09-19 20:44:27
Following the Federal Reserve's early Thursday morning interest rate cut announcement, Powell's hawkish press conference speech bolstered the dollar. While Friday (September 19th) saw limited economic data releases, several macroeconomic events are expected to unfold over the coming week, potentially impacting the dollar's trajectory.
Following the Fed's policy announcement, the US dollar has rebounded slightly and is currently overvalued. Given the Fed's policy shift, traders should wait for the dollar's gains to subside slightly, anticipating a potential correction in the coming trading sessions. From a longer-term perspective, now that the Fed has entered a cycle of easing, only continued release of stronger-than-expected economic data can materially reverse the situation and restore the dollar's dominance. This article provides the following outlook for the US dollar index over the medium term and for the coming week:
A sharp drop in initial jobless claims last week unexpectedly strengthened the US dollar on Thursday (September 18), following weak retail sales data. Initial claims fell to 231,000, reversing a surge to 264,000 the previous week. Continuing claims also unexpectedly declined. This is rare positive news for the US labor market and should provide continued support for the dollar ahead of the Federal Reserve's policy decision on Wednesday.
However, I don't think the dollar's resilience will last long. The Fed's dot plot clearly indicates two more rate cuts this year, and indeed, employment trends suggest the labor market is losing momentum. Therefore, a single bright unemployment benefit report alone is far from enough to change the current situation.
The currency to watch first is USD/JPY. The Bank of Japan kept interest rates unchanged as widely expected, but the decision was not without its drawbacks.
Two members broke with convention and voted in favor of a rate hike, a rare hawkish shift. Furthermore, the central bank announced it would gradually reduce its ETF holdings and begin selling its holdings in exchange-traded funds and real estate investment trusts, signaling a clear path toward exiting its ultra-loose monetary policy. A stronger yen in the coming days could also have a negative impact on the dollar outlook through the dollar index.
Meanwhile, the European Central Bank (ECB) held interest rates steady for the second consecutive meeting, with its president stating that economic risks have become more balanced. Markets generally believe the ECB's rate-cutting cycle is nearing its end, with expectations of approximately 12 basis points of cuts by July of next year. This means any 25 basis point cuts will have to be delayed.
The Bank of England held interest rates steady on Thursday, with markets pricing in about a 40% chance of a rate cut before the end of the year.
The Reserve Bank of Australia has cut interest rates by 75 basis points since February, but strong second-quarter GDP data has tempered market expectations for further easing.
The recent monetary policy tendencies of these countries representing the world's major economies are not conducive to the bullish development of the US dollar.
There will be several macroeconomic events in the coming week that could impact the dollar, including global PMI data on Tuesday, the Swiss National Bank’s (SNB) interest rate decision on Thursday, and more importantly, the Federal Reserve’s preferred inflation indicator, the core personal consumption expenditures (PCE) price index, which will be released on Friday.
Global PMI Data (Tuesday, September 23): Survey-based indicators such as PMIs are considered forward-looking data and can sometimes even outperform hard economic data. Pay close attention to the "prices paid" sub-index in the UK data, the employment sub-index in the US data, and the Eurozone's headline PMI data, which aligns with the current focus of central banks in these economies.
In the UK, concerns about inflation continue to hinder the Bank of England from cutting interest rates further, so any improvement in this area would be bearish for the pound and mildly positive for the dollar outlook.
If the German PMI shows signs of improvement, the euro may rebound against the dollar; while if the US PMI shows further weakness in the job market, the US dollar index may resume its decline.
Swiss National Bank Interest Rate Decision (Thursday, September 25): Despite Swiss interest rates falling back to zero, the Swiss franc has recently appreciated significantly. Previously, concerns about the impact of US tariffs had led to market speculation that the SNB might cut interest rates below zero for the first time in three years. However, with inflation rebounding slightly and remaining within the target range for three consecutive months, the market now expects the SNB to maintain interest rates unchanged.
Core PCE Data (Friday, September 26): The Federal Reserve cut interest rates this week as expected and hinted at two more cuts before the end of the year. However, Powell's warning that "there is no risk-free policy path" highlights the Fed's dilemma. Tariffs remain a major concern, as they could push inflation higher again. Therefore, while market focus has shifted to signs of labor market weakness, inflation could return to the forefront if future inflation data begin to exceed expectations. In addition to this most closely watched inflation indicator by the Fed, the University of Michigan (UoM) consumer inflation expectations survey will also be released next Friday.
The US dollar rebounded after hitting 96.21 at the speed of light. A classic MACD divergence can be seen at the bottom, supporting a rapid rebound in the US dollar index.
The US dollar index has rebounded to the dividing line of the upper box and is under the dual test of the two box edges. If it can effectively stand above 97.70, it is expected to continue to the box median near 98.10, and finally challenge the upper edge of the box at 98.60 and the neckline of the subsequent head and shoulders top pattern.
However, the MACD is currently below zero, the RSI is below 50, and both the 21- and 50-day EMAs are still pointing downwards, suppressing the dollar's rebound. Combined with the monetary policies of various countries suppressing the Federal Reserve, trading opportunities may emerge when the dollar's rise weakens.
(Daily chart of the US dollar index, source: Yihuitong)
At 20:40 Beijing time, the US dollar index was at 97.74.
Following the Fed's policy announcement, the US dollar has rebounded slightly and is currently overvalued. Given the Fed's policy shift, traders should wait for the dollar's gains to subside slightly, anticipating a potential correction in the coming trading sessions. From a longer-term perspective, now that the Fed has entered a cycle of easing, only continued release of stronger-than-expected economic data can materially reverse the situation and restore the dollar's dominance. This article provides the following outlook for the US dollar index over the medium term and for the coming week:
Unemployment benefits data provided support, but the outlook remains weak
A sharp drop in initial jobless claims last week unexpectedly strengthened the US dollar on Thursday (September 18), following weak retail sales data. Initial claims fell to 231,000, reversing a surge to 264,000 the previous week. Continuing claims also unexpectedly declined. This is rare positive news for the US labor market and should provide continued support for the dollar ahead of the Federal Reserve's policy decision on Wednesday.
However, I don't think the dollar's resilience will last long. The Fed's dot plot clearly indicates two more rate cuts this year, and indeed, employment trends suggest the labor market is losing momentum. Therefore, a single bright unemployment benefit report alone is far from enough to change the current situation.
The divergence of monetary policies between many central banks and the Federal Reserve is suppressing the US dollar
The currency to watch first is USD/JPY. The Bank of Japan kept interest rates unchanged as widely expected, but the decision was not without its drawbacks.
Two members broke with convention and voted in favor of a rate hike, a rare hawkish shift. Furthermore, the central bank announced it would gradually reduce its ETF holdings and begin selling its holdings in exchange-traded funds and real estate investment trusts, signaling a clear path toward exiting its ultra-loose monetary policy. A stronger yen in the coming days could also have a negative impact on the dollar outlook through the dollar index.
Meanwhile, the European Central Bank (ECB) held interest rates steady for the second consecutive meeting, with its president stating that economic risks have become more balanced. Markets generally believe the ECB's rate-cutting cycle is nearing its end, with expectations of approximately 12 basis points of cuts by July of next year. This means any 25 basis point cuts will have to be delayed.
The Bank of England held interest rates steady on Thursday, with markets pricing in about a 40% chance of a rate cut before the end of the year.
The Reserve Bank of Australia has cut interest rates by 75 basis points since February, but strong second-quarter GDP data has tempered market expectations for further easing.
The recent monetary policy tendencies of these countries representing the world's major economies are not conducive to the bullish development of the US dollar.
Dollar outlook for the week ahead
There will be several macroeconomic events in the coming week that could impact the dollar, including global PMI data on Tuesday, the Swiss National Bank’s (SNB) interest rate decision on Thursday, and more importantly, the Federal Reserve’s preferred inflation indicator, the core personal consumption expenditures (PCE) price index, which will be released on Friday.
Global PMI Data (Tuesday, September 23): Survey-based indicators such as PMIs are considered forward-looking data and can sometimes even outperform hard economic data. Pay close attention to the "prices paid" sub-index in the UK data, the employment sub-index in the US data, and the Eurozone's headline PMI data, which aligns with the current focus of central banks in these economies.
In the UK, concerns about inflation continue to hinder the Bank of England from cutting interest rates further, so any improvement in this area would be bearish for the pound and mildly positive for the dollar outlook.
If the German PMI shows signs of improvement, the euro may rebound against the dollar; while if the US PMI shows further weakness in the job market, the US dollar index may resume its decline.
Swiss National Bank Interest Rate Decision (Thursday, September 25): Despite Swiss interest rates falling back to zero, the Swiss franc has recently appreciated significantly. Previously, concerns about the impact of US tariffs had led to market speculation that the SNB might cut interest rates below zero for the first time in three years. However, with inflation rebounding slightly and remaining within the target range for three consecutive months, the market now expects the SNB to maintain interest rates unchanged.
Core PCE Data (Friday, September 26): The Federal Reserve cut interest rates this week as expected and hinted at two more cuts before the end of the year. However, Powell's warning that "there is no risk-free policy path" highlights the Fed's dilemma. Tariffs remain a major concern, as they could push inflation higher again. Therefore, while market focus has shifted to signs of labor market weakness, inflation could return to the forefront if future inflation data begin to exceed expectations. In addition to this most closely watched inflation indicator by the Fed, the University of Michigan (UoM) consumer inflation expectations survey will also be released next Friday.
Technical outlook for the US dollar:
The US dollar rebounded after hitting 96.21 at the speed of light. A classic MACD divergence can be seen at the bottom, supporting a rapid rebound in the US dollar index.
The US dollar index has rebounded to the dividing line of the upper box and is under the dual test of the two box edges. If it can effectively stand above 97.70, it is expected to continue to the box median near 98.10, and finally challenge the upper edge of the box at 98.60 and the neckline of the subsequent head and shoulders top pattern.
However, the MACD is currently below zero, the RSI is below 50, and both the 21- and 50-day EMAs are still pointing downwards, suppressing the dollar's rebound. Combined with the monetary policies of various countries suppressing the Federal Reserve, trading opportunities may emerge when the dollar's rise weakens.
(Daily chart of the US dollar index, source: Yihuitong)
At 20:40 Beijing time, the US dollar index was at 97.74.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
