United States
The US dollar experienced a downturn following Federal Reserve Governor Waller’s hints that a December rate cut might be on the horizon. The likelihood of this reduction jumped from approximately 66% last week to about 76% yesterday, before easing slightly to 72% today. Upcoming jobs data and CPI figures might shift perceptions. In currency markets, the Japanese yen was the only G10 currency that weakened against the dollar, dropping by about 0.25%. Asian Pacific currencies generally declined, while Central European currencies mostly advanced. The impact of US-China trade tensions is notable, with both nations imposing restrictive measures on key technologies and materials, contributing to a new low for the yuan this year.
Equities in Asia Pacific and Europe surged, with key indices in Japan, Hong Kong, South Korea, and Taiwan posting gains of over 1%. Europe’s Stoxx 600 marked its fourth consecutive rise, aligning with its longest upward trend since May. Meanwhile, US index futures showed little movement, and bond yields in Europe edged higher, with France’s CAC 40 outperforming Germany amid narrowing bond premiums. In the US, the 10-year Treasury yield rose almost three basis points to 4.22%, while the two-year yield remained steady at 4.18%. Gold traded firm, hovering below $2650, and WTI crude appeared to be stabilizing near $68, with no settlements above $70 since late November.
Eurozone
The euro is under pressure from political and economic factors. The eurozone’s economic stagnation and pro-cyclical fiscal policies have led to pervasive austerity. In Germany, a vote of confidence could lead to elections in early 2025. France’s political instability continues, with the government facing a likely no-confidence vote, though new elections can’t be called until next year. The ECB is expected to cut rates by 25 basis points on December 12, with odds of a larger cut decreasing following poor PMI data. The euro has been dragged lower by these political developments and stronger US economic indicators, trading at nearly $1.0460 before recovering slightly.
United Kingdom
After a generally strong performance last week, sterling faltered, dropping to a three-session low near $1.2615. Although it stabilized today, resistance levels have capped upward movement close to $1.27. The Bank of England meets on December 19, a day after the FOMC session, and despite some disappointing data, a rate cut remains unlikely.
China
Focus returns to the Bank of Japan following the Japanese cabinet’s approval of a supplemental budget. Governor Ueda has hinted at potential moves in December, with market expectations accounting for a 13-17 basis point rate hike since mid-November. Key regional issues include China’s potential for additional economic support through the PBOC, which has quietly begun quantitative easing, purchasing approximately CNY700 billion of government bonds over four months. Beijing’s recent export ban on key materials to the US is also noteworthy.
Japan
The Australian dollar has been volatile but is currently showing a firmer bias. Despite a wider current account deficit, it moved to $0.6505 in early European trading. Australia’s central bank is not expected to make any policy changes at its upcoming meeting. Reporting a Q3 current account deficit, Australia’s first in years, the focus now shifts to upcoming GDP data. The Australian dollar showed resilience after approaching a weekly low, trading back toward its 20-day moving average near $0.6525.
Canada
The Canadian dollar managed to secure its position as the second strongest G10 currency despite the broader gains of the US dollar, supported by the yen’s minor advance. Economic data in Canada remains light, with upcoming productivity, PMI, trade, and employment reports expected to provide further insight leading into Friday.
Australia
With upcoming Q3 investment and consumption data following recent GDP figures, Mexico’s economy is not grabbing major headlines. However, movements in unemployment figures and upcoming CPI data could pave the way for a potential interest rate cut at the December 19 central bank meeting. The peso traded within a range around MXN20.37, revealing the influence of broader US monetary policy decisions and domestic economic announcements.
Mexico
Despite market dynamics influenced by past tariff threats and broader US economic decisions, the Mexican peso found itself within an established range, with the central bank meeting on December 19 potentially impacting future fluctuations. The peso traded near MXN20.37, staying within a range defined by US election reactions and Federal Reserve actions, excluding brief volatility following tariff threats.
