### United States
Following the release of both U.S. inflation indicators, attention is turning to real sector data over the next couple of days and the confirmation hearing for the Treasury Secretary nominee. The dollar shows mixed performance today—firmer against currencies like the euro, Swiss franc, and Japanese yen, but weighed down by softer than anticipated core Consumer Price Index (CPI) data. This unexpected CPI softness resulted in an extension of the dollar’s pullback, with the Dollar Index slipping to 108.60. Despite recovering somewhat, the dollar’s four-month uptrend might be losing momentum. The Federal funds futures market fully prices in a rate cut for July, reflecting increased expectations of monetary easing. Importantly, the domestic retail sales report stands out today, indicating robust consumer spending towards the year’s end. Also, the Philadelphia Fed survey garners interest, contrasting with previous subpar regional Federal Reserve data.
### Eurozone
The euro demonstrated resilience against the dollar, benefitting from the latter’s decline post the U.S. core CPI announcement. It briefly touched $1.0350, bolstered by the slight softness in U.S. economic data. Although the euro region reported a substantial trade surplus last year, it seemingly had minimal impact on the currency’s strength. The euro’s trade surplus was notable, yet its influence on currency performance remained limited, a trend mirrored by the yuan’s dynamic despite China’s significant surpluses. The eurozone continues to face challenges, with the average monthly trade surplus lower than pre-pandemic and pre-conflict levels.
### United Kingdom
The British pound is experiencing pressure following lackluster GDP results from November. UK GDP figures for November indicated a modest growth rate of 0.1%, falling short of expectations. This, combined with a softer-than-anticipated U.S. CPI, played into the pound’s brief recovery. Sterling reached above $1.23 before settling near $1.22 later in European trade. UK 10-year Gilt yields saw declines after recent surges, yet remain higher than early 2024 levels. The details indicate downturns in industrial production and manufacturing output for the third month, despite a mild service sector improvement. The market anticipates a rate cut soon, reflected in swap market pricing.
### China
The Chinese yuan received underlying support from the U.S. dollar’s broad weakness following the U.S. core CPI data. This support led to a modest retreat of the dollar against the yuan for three consecutive days—a streak last observed in September. This movement comes ahead of China’s GDP estimate, anticipated to reflect a slight year-over-year increase for the fourth quarter. Observers note China’s low consumption relative to GDP, suggesting an overinvestment rather than underconsumption issue. November reported retail sales growth of 3.5%, reinforcing views of internal economic activity.
### Japan
The Japanese yen saw significant gains against the dollar following the Bank of Japan’s (BOJ) discussions on potential rate increases and the softer U.S. core CPI results. This combination led to the dollar posting its largest decline against the yen since late November. Continuing this trend, market participants anticipate a potential BOJ rate hike, pushing the dollar to a new annual low against the yen. The yen’s surge aligns with firm producer prices in Japan, reflecting higher costs and a weakened currency.
### Canada
In Canada, the dollar’s decline after the U.S. CPI report provided momentum for a stronger loonie, although these gains relapsed when disappointing existing home sales data emerged. The greenback initially approached CAD1.4300, later retracing its movement. Canada’s housing market data showed a significant decline in home sales, the steepest since May 2022, influencing currency dynamics. The U.S. dollar’s re-engagement suggests initial resistance near CAD1.4400, though recent trading hovered around CAD1.4385.
### Australia
Australia’s labor market report provided mixed signals, as full-time job losses countered broader job growth, placing pressure on the Australian dollar. Yesterday’s U.S. CPI-induced rally saw fluctuations, with the Aussie briefly regaining ground before retreating. Despite this, the unemployment ticked upward, highlighting participation rate shifts. Market sentiment anticipates potential rate adjustments at the upcoming Reserve Bank of Australia meeting.
### Mexico
Mexican peso performance faltered amidst mixed emerging market currency movements. A decline in U.S. yields bolstered global risk appetites and lifted equities, initially aiding the peso. However, it later declined, facing resistance just above MXN20.62 in Europe. Coinciding with upcoming Mexican government measures aimed at import substitution and ongoing U.S.-Mexico tensions, the peso’s trajectory remains uncertain. Mexican domestic policies and their broader implications on trade relations are poised to draw investor focus amidst upcoming geopolitical events.
