### United States
The financial markets have been volatile as existing positions confront new expectations surrounding the implications of a potential second Trump administration. The US dollar has regained strength today after losing some of Wednesday’s gains yesterday. In contrast, the US 10-year yield has drifted lower, weighing on the dollar against the yen. Most G10 currencies are maintaining gains against the dollar this week, except for the euro, which is down about 0.6% and appears to be at risk. Equities are mostly down today, following a lackluster reaction to a local debt swap initiative from Beijing, and US index futures are slightly softer. Bonds are in demand, with European 10-year benchmark yields falling by 4-6 basis points, reversing earlier rate hikes in the UK, Germany, and France.
The Federal Reserve’s widely anticipated quarter-point cut in the Fed funds target rate to 4.50%-4.75% set the tone. Fed Chair Powell cautiously avoided discussing policy impacts under a potential new administration or the outlook for the December meeting. The likelihood of another quarter-point cut has decreased to 66% from 82% a week ago. The September consumer credit report and the preliminary November University of Michigan survey are not expected to significantly impact the market.
### Eurozone
German political developments have caught media attention as Chancellor Scholz reportedly fired Finance Minister Linder. Despite some reports suggesting a snap election call, Scholz does not plan an immediate election, aiming instead for March, which advances the election timeline by six months. Leading the opposition, Merz seeks a vote of confidence and elections as early as mid-January. The FDP’s motives remain unclear, as their public support has diminished, threatening their Bundestag representation.
Following the regional trend, the euro saw a temporary recovery, surpassing the 50% retracement mark of Wednesday’s sell-off at $1.0810, peaking at $1.0825. However, it has since retreated to $1.0760 and struggled to maintain gains above yesterday’s settlement.
### United Kingdom
The UK financial markets grappled with Bank of England policies, where a second quarter-point rate cut was announced alongside a warning of inflationary pressures due to governmental fiscal policies, forecasted to boost inflation by around 0.5% by Q3 2025. Governor Bailey hinted at gradual interest rate reductions if economic conditions align with projections, leading to trimmed expectations for additional cuts in December.
The British pound briefly exceeded $1.30 yesterday, recovering over three-quarters of Wednesday’s losses, although it remains below this threshold. Sterling is on track to post its first weekly gain since late September but faces resistance unless the $1.2925 level is lost.
### China
China anticipates the October CPI and PPI reports tomorrow. A slight uptick in CPI to 0.5% from 0.4% is expected, potentially fueled by holiday-related activities. Producer prices could continue deflating, albeit at a slower pace, influenced by rising commodity prices. The PBOC’s dollar fix was a key focus today after a near 1% lift yesterday. The reference rate was set at CNY7.1433, down from CNY7.1659.
### Japan
Japan’s economic data revealed a 1.1% year-over-year decline in household spending for September, though this was less severe than anticipated. Japan’s Q3 GDP, reported next week, is expected to reflect a modest 0.1% growth. Personal consumption during Q3 is projected to slow to 0.2% from 0.9% in Q2, despite stronger wage growth. Business spending may have contracted by 0.3% after a 0.8% growth in Q2.
### Canada
The US dollar’s dynamics against the Canadian dollar have been noteworthy, with the Canadian dollar recovering almost fully from previous losses. Although the US two-year premium over Canada’s rates rose to a 27-year high, it did not significantly impact the Canadian currency. The Canadian employment report may struggle to boost the currency despite a 112k surge in full-time positions reported in September. The unemployment rate is projected to rise slightly.
### Australia
The Australian dollar experienced a notable movement as it initially fell to around $0.6515, near a three-month low, following the US election results. It, however, managed a recovery, reaching a two-week high close to $0.6690. Currently, it has pulled back to $0.6625, and technical factors suggest that a decisive break could alter its momentum heading into next week.
### Mexico
Despite concerns over a prospective Trump presidency and potential adverse impacts on Mexico, the US dollar marginally declined against the Mexican peso on Wednesday, with an additional drop of almost 1.4% yesterday. The peso’s resilience resulted in a weekly appreciation of 2.25%, with support for the dollar anticipated in the MXN19.50-60 range.
