## United States
The US dollar made gains against most G10 currencies, except for the Swiss franc, and displayed a varied performance among emerging market currencies last week. Interestingly, the US 10-year yield decreased for the third consecutive week, resting near 4.16%, a dozen basis points below its pre-election level, while the 2-year yield fell near 4.10%, about six basis points below the same mark. The Dollar Index, however, surged by 2%. Among the G10, only the Japanese yen has appreciated against the dollar since the election. In contrast, the Chinese yuan’s previous correlation with the yen has diminished, resulting in approximately a 2.35% decline since the election. Remarkably, Bitcoin crossed the $100k threshold, drawing attention even from mainstream media, suggesting it may be a stronger rival to gold than the dollar, as Fed Chair Powell hinted in a recent Q&A session.
As the upcoming week unfolds, four G10 central banks are slated to meet, alongside Brazil’s central bank. The Reserve Bank of Australia is anticipated to maintain its current rate, with minimal risk of surprises. Brazil’s central bank might implement a 75-basis point hike, bringing the Selic rate to 12%. The Bank of Canada’s meeting follows a jump in unemployment (6.8% vs. 6.5%), potentially prompting the central bank to overlook a firmer CPI and proceed with a second consecutive 50-basis point cut. Both ECB and SNB meet on Thursday, with market consensus leaning towards a quarter-point cut from the ECB rather than a 50-basis point decrease, with the SNB’s decision hanging in the balance.
The US reports November’s CPI on Wednesday, anticipating a rise for the second consecutive month. Market derivatives suggest an 85% likelihood of a Fed cut. However, the Fed enters a quiet period ahead of the December 17-18 meeting, creating a challenge akin to September’s experience when market preparation for a 50-basis point cut occurred amid a quiet spell, possibly through press stories.
### Eurozone
The European Central Bank gathers on December 12 amid compelling reasons for continued easing of monetary restrictions. Market speculation is rife about whether the ECB will opt for a half-point or a quarter-point cut, with odds for the former declining since a peak following the dismal flash PMI on November 22. Europe’s struggle with consecutive economic shocks, amplified by Trump’s tariff threats and evolving trade relations with China, compounds these challenges. A recent increase in headline inflation (2.3% vs. 2.0%) owes largely to fuel base effects, not hindering an easing policy.
The swaps market anticipates approximately 100 basis points of cuts in H1 2025. The Swiss National Bank’s meeting could result in another rate cut, although a 50-basis point reduction seems overly aggressive. Despite discussions about reinstating negative rates if needed, the SNB remains cautious. The firmness of the franc against the euro underscores the significant exchange rate role for the SNB since March’s rate cut prediction.
### United Kingdom
The UK’s economic performance for October is unlikely to sway the Bank of England at its December 19 MPC meeting. Disappointing September GDP data (-0.1% contraction), weaker retail sales in October (-0.9%), and a dip in composite PMI to 51.8 are contributing factors. The swaps market indicates less than a 13% probability of a BOE cut next week but almost an 85% chance at the subsequent February 6 meeting.
After the US jobs data, Sterling temporarily surpassed $1.28 for the first time since November 12, then reversed lower to new session lows near $1.2720. The upward correction from the November 22 low (~$1.2485) might have peaked. A breach of the $1.2675-85 zone could reinforce this assessment.
### China
A noteworthy development is China’s 30-year bond yield falling below Japan’s. However, a more significant event might be China’s lower cost of issuing dollar bonds compared to the US Treasury. With capital controls in place, real rates remain reasonable due to low inflation. October’s CPI stood at 0.3%, while the 10-year nominal yield was around 2.0%, translating to a 1.7% real rate. The forthcoming economic releases, including November lending and trade figures, carry significant implications, with Chinese export tariffs remaining politically charged and trade surpluses soaring.
Meanwhile, the dollar gained nearly 0.5% against the offshore yuan last week, marking the eighth uptick in ten weeks during Q4. Suggestions of yuan depreciation to counter tariffs overlook the PBOC’s intervention to moderate declines by adjusting the dollar’s reference rate below existing market levels.
### Japan
The Bank of Japan meeting on December 19 is crucial, with Governor Ueda emphasizing that every meeting remains significant. With firmer Tokyo CPI and solid Q4 economic indicators, including robust exports, conditions seem ripe for another hike. The critical data includes the November PPI report and the Tankan survey on December 13. Notably, Japan’s PPI surged to 3.4% in October, indicating upward pressure.
Recent market activity indicates the dollar traded within a tight yen range (~JPY150). The question persists whether this pattern is consolidative or a base/reversal, appearing as a continuation formation. Yet, without a breakout, the pattern risks losing significance. Momentum indicators favor a potential upside break, exacerbated by US CPI trends.
### Canada
The Bank of Canada is among the most aggressive G10 central banks with its rate cuts. An uptick in unemployment (up to 6.8%) and slowing wage growth amplify expectations for a 50-basis point cut. Canada’s easing cycle began in June, now pushing towards a further reduction, potentially dropping the overnight target rate to 3.25%. The US dollar reached CAD1.4155, eyeing the next resistance near CAD1.4180, with momentum indicators suggesting continued upward pressure.
### Australia
The Reserve Bank of Australia meeting on December 10 is expectedly uneventful, given its firm stance on holding rates. With derivatives indicating no rate cut anticipated until well into April, dramatic economic changes would be required to prompt an earlier move. Despite a robust job market, the unemployment rate ticked up due to increased participation.
The Australian dollar’s recent decline below $0.6400 highlights a challenging performance, contrasting sharply with other G10 peers. The Aussie recorded its most significant weekly loss since July, even as the RBA remains the only G10 central bank not planning cuts.
### Mexico
The November CPI report on December 12 could pave the way for another rate cut on December 18. Indicators suggest the headline inflation rate will recede, possibly hitting the lowest level since Q1 2023. An easing cycle is on the cards, contingent on CPI trajectories. Meanwhile, the peso gained 0.8% last week, one of the better-performing emerging market currencies, contrasting with Brazil’s real, which dropped nearly 2%. With Brazil’s central bank meeting on December 11, consensus points toward at least a 75-basis point hike in response to firm inflation and a depreciating real.
