Global Market Overview

US Dollar and G10 Currencies

The US dollar showed slight softness today but largely remains in consolidation following yesterday’s movements against the G10 currencies. The Australian dollar led gains, reaching its strongest level since September 18. The market appears largely unresponsive to dovish surprises, including a significant increase in German factory orders and an unexpected drop in Japanese household spending. Most emerging market currencies are showing signs of strength.

Reserve Bank of India and Chinese Monetary Policy

In line with expectations, the Reserve Bank of India reduced its repo rate by 25 basis points to 5.25%, simultaneously indicating the possibility of further easing. Meanwhile, the People’s Bank of China marginally increased the US dollar reference rate, although the dollar has generally depreciated on a weekly basis since late September, with rare exceptions.

Equity Markets

Outside of Japan—where major indices declined by approximately 1%—equity markets have generally advanced. In the Asia Pacific region, Shenzhen and the Hong Kong-traded mainland share index outperformed, recording gains between 1.25% and 1.80%. The Stoxx 600 in Europe rose by about 0.25%, approaching its ninth increase in ten sessions if gains hold. Futures for the S&P 500 and Nasdaq were also higher by 0.2% to 0.4%.

Government Bonds and Commodities

The European bond market remains subdued, with yields mostly edging higher. Over the week, the 10-year Gilt yield declined by roughly 4 basis points, while the German 10-year yield rose by nearly three basis points. US 10-year Treasury yields remain firm around 4.10%, up by two basis points from a week prior. Gold is undergoing a weeklong phase of consolidation, having closed last week near $1,240 and currently trading close to $1,223. January WTI crude is trading near the upper limit of the $58-$60 range seen throughout the week.

Currency Movements

US Dollar Index

The Dollar Index reached a marginal new low for the period since late October yesterday, dipping slightly below the 98.80 level, which corresponds to the 38.2% Fibonacci retracement of the rally since the September 17 Federal Reserve meeting. The next key retracement level is 50% at around 98.30. Despite this, downward momentum has eased, and the DXY rebounded for the first time in nine sessions yesterday. Currently, it trades within the previous day’s range. Market consensus anticipates a Federal Reserve rate cut next week, and historical data indicates the dollar typically rallies following Fed easing in September and October. Short-term traders appear increasingly cautious.

Today’s September data on personal income, spending, and price deflators are considered too dated to materially affect policy or investor decisions. Bloomberg’s median forecast projects the headline deflator edging up to 2.8% from August’s 2.7%, potentially matching this year’s highest reading, last seen at 2.9% in April 2023. The core inflation rate may ease slightly to 2.8% from 2.9%, marking its first moderation in five months. The futures market currently prices in roughly a 60% probability of an interest rate cut in Q1 2026.

Eurozone Euro

The euro posted a marginal new high since October 17 yesterday, surpassing $1.1680 before stalling and registering its first daily loss since November 21. The $1.1695 level aligns with the 50% retracement of losses incurred since the year’s high near $1.1920 on September 20. Although the euro held its lows, it has struggled to regain footing above $1.1670 despite robust German factory orders that soared by 1.5%, considerably exceeding the Bloomberg survey median forecast of a 0.3% increase. This follows a 2% gain in September, marking the first two-month consecutive rise since March-April 2023.

The Bundesbank attributes the order surge primarily to a sharp 87% increase in transport equipment demand, including aircraft, ships, trains, and military vehicles. Industrial production data, scheduled for release on Monday, revealed a 1.3% rise in September; historical patterns suggest large monthly gains tend to be followed by retrenchments. Additionally, a key parliamentary vote on Germany’s government pension bill is imminent.

Chinese Yuan (CNY)

The US dollar recently touched its lowest annual level on Wednesday near CNH7.0540 before briefly rising above CNH7.07 during European and North American trading hours yesterday. While the dollar strengthened against most G10 currencies yesterday, emerging market currency performance was uneven. Today, the dollar is consolidating in the offshore yuan market, trading between CNH7.0630 and CNH7.0720. The People’s Bank of China set the reference exchange rate slightly higher at CNY7.0749 following a record low fix at CNY7.0733 yesterday.

The greenback appreciated about 0.1% against the onshore yuan yesterday, marking its largest single-day increase since November 17. Upcoming data releases include November trade figures, which are expected to show a surplus exceeding $100 billion for the first time since August. Inflation data is scheduled for December 10, just hours before the Federal Open Market Committee meeting. The consensus forecast anticipates a 0.7% year-over-year rise in the consumer price index, potentially matching the highest inflation rate since last year.

Japanese Yen (JPY)

The dollar depreciated to JPY154.35 today, the lowest level recorded since November 14. Momentum indicators are turning bearish, with the five-day moving average crossing below the 20-day moving average for the first time in two months. The greenback briefly rebounded above JPY155.00 during European morning trading. Notably, nearly $2 billion worth of options at JPY155 are set to expire today. Despite this, the dollar remains below its 20-day moving average of approximately JPY155.65.

The yen has shown resilience despite a marked 3.0% year-over-year decline in October household spending, exceeding Bloomberg survey expectations of 1.0% growth. The decline was driven primarily by reduced transportation and housing expenditures. From a GDP perspective, consumption increased 0.6% in Q3 and is forecast to remain steady in Q4. Despite weak early Q4 consumption data, the swaps market maintains roughly a 90% probability of a Bank of Japan rate hike on December 19.