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Fed maintains hawkish stance, dollar under pressure
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: The Federal Reserve maintains a hawkish stance, the US dollar is under pressure". Hope this helps you! The original content is as follows:
In Asian trading on Thursday, the U.S. dollar index hovered around 96.15. The intraday strength of the U.S. dollar was also boosted by the speech of U.S. Treasury Secretary Bessent, who reiterated that the U.S. pursues a strong U.S. dollar policy and denied that the U.S. is intervening in the currency market to support the Japanese yen. Previously, because U.S. President Trump said the value of the U.S. dollar was "great" when talking about it on Tuesday, the market interpreted this as downplaying the recent decline of the U.S. dollar, and the U.S. dollar index once fell to its lowest level since February 2022. The U.S. dollar index has fallen nearly 2% this year, continuing last year's decline of 9.4%. Market expectations for the Federal Reserve to continue cutting interest rates, uncertainty about tariffs, concerns about policy stability, and rising fiscal deficits have all weakened investor confidence in the stability of the U.S. dollar and the U.S. economy.
Analysis of major currency trends
US dollar: As of press time, the US dollar index is hovering around 96.15. The structural decline of the US dollar is not an isolated phenomenon, but triggers a systematic repricing of global assets. The linkage logic of different assets provides traders with diversified trading targets. The structural weakness of the US dollar provides traders with clear trend opportunities, but successful trading requires not only grasping the driving logic, but also establishing a rigorous position management and risk control system. Only by deeply understanding the internal logic of policy differentiation, capital flows and cross-asset linkage can we accurately capture trading opportunities and avoid systemic risks in the weak U.S. dollar cycle. Technically, the U.S. dollar index fell below the key price of 96.97 and is currently oscillating around the 96.15 pressure level. The current support is around 95.32, as well as 96.15, and the pressure level is around 96.97.



1. As expected, the Federal Reserve kept interest rates unchanged and stated that the unemployment rate showed signs of stabilization
Federal Reserve officials kept interest rates unchanged. The interest rate statement indicated that the U.S. economy had improved, and Suggesting a more cautious approach to potential interest rate adjustments in the future, the Federal Open Market www.xmtraders.committee voted 10-2 to maintain the benchmark federal funds rate at a range of 3.5%-3.75%, voting against and advocating a 25 basis point rate cut.In a statement after the meeting, policymakers said "job growth remains low and the unemployment rate is showing some signs of stabilizing." Officials also removed language about increased downside risks to employment that appeared in the first three statements. Despite increasing pressure from the Trump administration, the central bank's improved assessment of the labor market could dampen market expectations for a near-term rate cut. Ahead of the meeting, investors believed another rate cut was unlikely until at least June.
2. The probability that the Federal Reserve will keep interest rates unchanged in March is 86.5%, and the probability of keeping interest rates unchanged by June is 39.2%.
According to CME "Fed Watch": the probability that the Federal Reserve will cut interest rates by 25 basis points by March is 13.5%, and the probability of keeping interest rates unchanged is 86.5%. The probability that the Fed will cut interest rates by 25 basis points cumulatively by April is 24.1%, the probability of keeping interest rates unchanged is 74%, and the probability of cutting interest rates by 50 basis points cumulatively is 2.0%. The probability of the Federal Reserve keeping interest rates unchanged until April is 39.2%, and the probability of cumulative interest rate cuts of 25 basis points and 50 basis points is 47.5% and 12.5% respectively
3. Zelensky said that the Ukrainian National Security Agency is planning new actions against Russia
Ukrainian President Zelensky said on January 28, local time, that the Ukrainian National Security Agency is continuing to plan new actions against Russia, and these actions will change the course of the Russia-Ukraine conflict. On the same day, Zelensky listened to a report on the www.xmtraders.combat operations of the Ukrainian State Security Service, including frontline www.xmtraders.combat situations, especially the actions of the "Alfa" special forces of the Ukrainian State Security Service, and the actions taken by the Ukrainian State Security Service in Russia in response to Russian strikes.
4. U.S. Secretary of State: The trilateral talks between the United States, Russia and Ukraine are still advancing on the territorial issue and there are still differences.
On January 28, local time, U.S. Secretary of State Rubio said that the trilateral negotiations between the United States, Russia and Ukraine on the Ukrainian issue are still advancing, but there are still differences on the Ukrainian territorial issue. "This issue is one of the few key obstacles in the current negotiations." Rubio said the United States would likely need to provide "security mechanisms" for any potential agreement to ensure its implementation. He said talks this weekend in Abu Dhabi, United Arab Emirates, would likely involve U.S. officials but not Witkoff or Kushner. Rubio did not specify who from the United States would participate.
5. Report: The Trump Justice Department’s investigation into Powell continues, and the Fed has not fulfilled the subpoena request
According to people familiar with the matter, the Federal Reserve has not yet fulfilled the federal grand jury subpoena issued as part of the criminal investigation against Fed Chairman Jerome Powell. The investigation into Powell remains ongoing. It is worth noting that the news came just hours before the Federal Reserve announced whether it would cut interest rates for the fourth time in recent months. It's unclear when the deadline for the Fed to submit documents requested by the subpoena will be.
Institutional Views
1. CICC: The Federal Reserve’s first interest rate cut this year may be postponed to the second quarter
CICC Research Report said,The Federal Reserve kept interest rates unchanged at its January meeting, in line with market expectations. Governor Waller's vote against the Fed may be related to his desire to be nominated as the next Fed chairman. The monetary policy statement said that "the unemployment rate has stabilized" and Powell said that monetary policy is "in the right place", indicating that the threshold for another interest rate cut in the short term has been raised. Beyond that, Powell didn't provide much guidance, and he avoided other issues unrelated to interest rate setting. We believe the Fed is still expected to cut interest rates twice in 2026, but the first rate cut may be postponed to the second quarter. The core problem of the U.S. economy is not insufficient growth, but uneven income distribution and affordability pressure for ordinary families. Such structural problems cannot be solved by money alone. Instead, they may push the government to adopt more non-market intervention policies to respond to the concerns of voters.
2. The easing cycle has entered an extended period, and analysts are bearish on the dollar’s subsequent upside.
Analyst Audrey Childe-Freeman said: “The press conference gave a more optimistic assessment of the U.S. economy, which confirmed that the pause in the easing cycle may be extended. In turn, this also confirmed that the U.S. dollar will be supported from a cyclical perspective, but the U.S. dollar was not supported by short-term fundamentals at the beginning of this year. It is driven by the economy, so its upside potential may be limited and difficult to sustain. ”
3. Institutions: The Bank of Canada’s stance is slightly dovish and it is expected to consider raising interest rates after 2026
Ninepoint Partners portfolio manager Etienne Bordeleau-Labrecque believes that overall, the tone of the Bank of Canada is slightly dovish, and the risk balance is tilted downward. His base case is that the Bank of Canada will keep interest rates unchanged in the first half of 2026 before it can more clearly judge whether economic growth and employment have stabilized or are heading downwards again. He said that if the situation develops as policymakers expect, Canada's output gap is expected to narrow in late 2026 or early 2027, "which will mechanically prompt (the Bank of Canada) to start considering raising interest rates."
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