Recently, the expectation of interest rate cuts by the Federal Reserve has continued to ferment, and the market's attention to the upcoming meeting of the Federal Reserve this week has reached a new height. As the Federal Open Market Committee (FOMC) meeting on September 17-18 approaches, market sentiment volatility intensifies and the US dollar continues to be under pressure, with major currencies generally strengthening against the US dollar. Traders generally expect the Federal Reserve to cut interest rates by 50 basis points this week, and this expectation is continuing to drive down the trend of the US dollar.

The US dollar is under pressure and approaching its lowest point of the year

On September 16th, the US dollar index fell 0.3%, approaching the low point of August. If it falls below this support level, the US dollar will hit its lowest level since January. According to market trends, the Bloomberg US Dollar Index shows that the overall weakness of the US dollar against major currencies has continued for several weeks, especially against the backdrop of increasing market expectations for further easing policies by the Federal Reserve.

Traders' expectations for the Federal Reserve to cut interest rates by 50 basis points continue to rise. As of now, the federal funds rate futures market shows that this probability has reached 58%, slightly higher than last Friday's expectation of 50%. This change originated from a report by a well-known financial media last Friday, which quoted analysts as pointing out that the Federal Reserve is likely to adopt more aggressive policies at this meeting. And the analysis by Wall Street Journal reporter Nick Timiraos has sparked widespread market discussion, believing that the possibility of a 50 basis point interest rate cut has significantly increased.

Rodrigo Catril, a strategist at the National Australia Bank, stated in his latest market analysis: "We believe that the Federal Reserve is about to embark on a new round of easing, which will continue to put pressure on the US dollar. As the Fed gradually lowers the funds rate to neutral or even below neutral levels, the US dollar will continue to decline in the coming months." This also means that the cyclical weakness of the US dollar may intensify in the coming months.

Safe haven currencies such as the Japanese yen and Swiss franc have shown strong performance

Against the backdrop of pressure on the US dollar, safe haven currencies such as the Japanese yen and Swiss franc have become the biggest winners. On Monday, the USD/JPY exchange rate rose again, breaking through the psychological barrier of 1 US dollar to 140 Japanese yen and setting a new high since July. The market is generally betting that the interest rate differential between the United States and Japan will narrow, further driving the strength of the yen.

The market's attention has begun to focus on the upcoming economic data to be released by the Federal Reserve, especially the August retail sales data. Traders generally expect the data to grow by 0.2%, far lower than the 1% growth rate in July. If the data is lower than expected, this will further provide a basis for the Federal Reserve to take more aggressive interest rate cuts.

UBS analysts pointed out that weak retail sales and industrial production data may be one of the key factors driving the Federal Reserve to cut interest rates by 50 basis points. Former hedge fund manager Jim Cramer also said, "This is the last important economic indicator before the Federal Reserve makes a decision, and if the data shows weakness, it will directly affect the attitude of decision-makers

Analysts have divergent views, and the market outlook is unpredictable

Although the market's expectations for a weaker US dollar are relatively consistent, some institutions still hold relatively conservative views. David Forrester, a strategist at the French Agricultural Credit Bank in Singapore, warned that "although the market is sensitive to the risk of the Federal Reserve launching an early easing cycle, we believe that such risks are overestimated. The Federal Reserve is likely to only cut interest rates by 25 basis points, which could drive a short-term rebound in the US dollar

There are many analysts with similar views, especially those who believe that the market has overinterpreted the Federal Reserve's loose cycle. However, there is still overwhelming support in the market for further weakening of the US dollar. According to the latest survey results, most analysts predict that by the same period next year, the exchange rates of the euro, yen, Canadian dollar, and Australian dollar against the US dollar will all strengthen.

Bob Savage, a market strategist at Bank of New York Mellon, pointed out in a report that "if the Federal Reserve unexpectedly shows a dovish attitude at this meeting, the US dollar may further come under pressure." However, there is still uncertainty in the market. Kristina Clifton, foreign exchange strategist at the Commonwealth Bank of Australia, said that if the Federal Reserve ultimately fails to implement the dovish policy expected by the market, the US dollar may rebound later this week.

Technical aspect: The rebound momentum and resistance of the US dollar

From a technical perspective, the performance of the US dollar still faces pressure. The recent momentum indicators have turned bearish, indicating that the US dollar may struggle to gain significant support in the short term. However, there is still some possibility of a technical rebound in the market, especially if this week's key economic data does not weaken as expected by the market, the US dollar may temporarily break away from its current low.

Prospects and impacts of other central bank policies

The Federal Reserve is not the only central bank that has received attention this week. The Bank of Japan will hold a meeting on Friday, and the market generally expects the bank to maintain its current interest rate policy unchanged. However, analysts believe that this meeting may lay the foundation for further tightening of monetary policy in October.

At the same time, the Bank of England will hold a meeting on Thursday, and the market expects the bank to maintain the current interest rate level of 5.00% unchanged. However, some traders have started betting that the Bank of England may further cut interest rates in the coming months, with a 69% chance of keeping rates unchanged at this meeting.

In addition, the South African Central Bank and the Norwegian Central Bank will also hold meetings this week. The South African central bank may relax its monetary policy, while the Norwegian central bank is expected to maintain current interest rates unchanged.

Crude oil and gold market reactions

Against the backdrop of a weak US dollar and expectations of loose monetary policy from the Federal Reserve, gold prices continue to rise. The spot gold price is close to $2580, approaching the historical high of $2585.99. This trend is mainly supported by lower bond yields. In addition, due to about one-fifth of the crude oil production in the Gulf of Mexico still being shut down, oil prices have slightly increased. Brent crude oil prices rose 19 cents to $71.78 per barrel, while US crude oil prices rose 28 cents to $68.93 per barrel.

Overall, the policy direction of the Federal Reserve this week will undoubtedly dominate the market trend, and the short-term directional changes of the US dollar will largely depend on the bank's decision-making power. The probability of a 50 basis point interest rate cut is high, but if it fails, market volatility may intensify. Traders need to closely monitor key data and the results of central bank meetings, and flexibly adjust their positions to cope with the accompanying fluctuations.