United States
The profile of the US dollar has softened today, with all G10 currencies showing gains. The yen has led the way with a 1%+ surge due to heightened speculation about a potential rate hike next month. The yield on the US 10-year Treasury is hovering around 4.25%, a low not seen since the election. The softer dollar environment has created favorable conditions for gold, which has extended its recovery, straddling the $2650 mark in Europe. Meanwhile, most major equity markets in the Asia Pacific region were mixed, with increases in places like China, India, Australia, and New Zealand, but declines in Japan, Taiwan, and South Korea. US equity futures are showing a softer trend as well.
In preparation for tomorrow’s holiday, a slew of US data has been released today, including revisions to Q2 GDP, October’s goods trade balance, durable goods orders, and personal consumption expenditures. These figures will help economists gauge economic momentum at the outset of Q4. It’s expected that economic growth will moderate to 2.0%-2.5% this quarter from 2.8% in Q3 and 3.0% in Q2. Consumption rose 0.4%, slightly lower than September’s 0.5% gain. Both headline and core inflation rates have shown slight acceleration, reducing the likelihood of a Fed rate cut next month.
### Eurozone
In the Eurozone, the euro is maintaining a firm stance but remains below yesterday’s peaks. Tomorrow’s release of eurozone money supply data and EC and ECB surveys are unlikely to provide new trading incentives, but the preliminary estimate of November’s CPI on Friday could be significant. Economists expect a rise in the headline rate to 2.3% from 2.0% and an increase in the core rate to 2.8% from 2.7%. Earlier dismal flash PMI results had increased the probability of a larger rate cut, but the market has since adjusted, seeing it as less likely. The euro has been trading within a narrow range, and breaking above $1.06 would be necessary to improve its technical stance.
### United Kingdom
In the UK, sterling has maintained a firm position, trading near this week’s highs around $1.2615. The UK’s economic calendar is light for the coming days, but consumer credit and mortgage lending figures are expected. The likelihood of a Bank of England rate cut next month has diminished, with more certainty for a February cut instead. Market expectations have factored in some rate reductions for H1 2025, though a further cut is not fully anticipated for Q3 2025.
### China
In the Asia Pacific region, despite a firmer US 10-year yield, the greenback found little traction against the yen, trading at a new two-week low near JPY153.00. Speculation surrounding a Bank of Japan rate hike has impacted the dollar’s position against the yen, bringing it to nearly JPY151.35 today. The Chinese yuan has faced continued pressure, with the People’s Bank of China setting the greenback’s reference rate with little adjustment from previous sessions. A small increase in China’s PMI is anticipated this weekend.
### Japan
A significant rally in the yen has occurred, propelled not by domestic data but speculation about a potential Bank of Japan rate hike next month. Industrial production in Japan is climbing, driven by a recovery in the auto sector and rising exports. Tokyo’s CPI figures, expected soon, could encourage speculation about a BOJ rate hike.
### Canada
Canada is expected to release September and Q3 GDP data ahead of the weekend. A robust GDP figure could influence expectations about the Bank of Canada’s rate decisions, with a second 50 basis point cut in December considered but not fully priced in. The Canadian dollar has been affected by recent market movements, with the potential for trade policy adjustments by Canadian officials following Trump’s tariff threat.
### Australia
The Australian dollar has faced varied trading conditions, dropping to its lowest settlement since April (~$0.6450). Despite this downturn, it saw a bid today, approaching the $0.6500 area. Australia’s monthly CPI was stable, and the Reserve Bank of Australia is expected to maintain current rates until Q2 2025.
### Mexico
In Mexico, the peso has continued to underperform, dropping around 0.3% and marking it as the second weakest emerging market currency after the Russian ruble. October trade figures and the Banxico inflation report are awaited, alongside the minutes from the recent central bank meeting. The central bank meeting scheduled for December 19 has market expectations leaning towards a quarter-point interest rate cut. The Trump tariff threat affected the peso significantly, and the US dollar reached recent highs not seen since August 2022 near MXN20.8315.
