Important calendar events
The dollar remained steady on Wednesday, and the index hovered close to 106.3. US treasury yields declined on rising Fed rate cut expectations, with the US 10-year bond yield dropping from 4.22% to 4.18%.
The US Federal Reserve cut interest rates by 25 basis points in November to a target range of 4.50% to 4.75%. The Fed launched its easing cycle in September, with an aggressive 50-bp rate cut, signaling the end of its restrictive monetary policy. Fed Chair Jerome Powell has stated that the progress of disinflation is steady, and the labor market is strong, permitting a shift towards a more neutral monetary policy.
Dovish Fedspeak this week lifted rate cut expectations in December, putting pressure on the dollar. FOMC policymaker Mary Daly stressed the need to keep moving towards a normalized policy and stated that a rate cut in December is still on the table. Fed member Adrianna Kugler stated that disinflation continues and that the central bank aims to move policy toward more neutral settings. Fed’s Christopher Waller stated outright that he is likely to vote for a rate cut in December. Market odds of a December rate cut rose from 75% to 79% on Wednesday, putting pressure on the dollar.
However, persistent price pressures may prevent the Federal Reserve from pivoting to a less restrictive monetary policy. US inflation is proving to be sticky despite the Federal Reserve’s efforts to bring it down to its 2.0% target. Headline inflation rose to 2.6% year-on-year in October from 2.4% in September.
Core PCE Price Index data confirmed that price pressures in the US remain high. Core PCE Price Index is the Federal Reserve’s preferred inflation gauge and influences the central bank’s policy outlook. US Core PCE inflation rose by 0.3% in October up from 0.2% in September. Annual Core PCE Price Index rose to 2.8% in October from 2.6% in September, indicating that disinflation in the US is stalling and may deter the Fed from cutting interest rates in December.
President-elect Donald Trump stated on social media over the weekend that BRICS nations would face 100% tariffs if they created a new currency to replace the dollar. BRICS is an intergovernmental organization comprising nine countries – Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates. Trump’s threats boosted the dollar on Monday against rivaling currencies on rising concerns that the incoming US President is going to start multiple trade wars.
Last week Trump also announced more tariff measures, causing increased volatility in Forex markets. Trump stated that his administration would impose an additional 25% tariff on imports from Canada and Mexico, with an additional 10% to the 60% already announced during his election campaign on Chinese goods.
On the data front, Manufacturing PMI data released on Monday for the US were optimistic, boosting the dollar. ISM Manufacturing PMI rose to 48.4 in November from 46.5 in October against market expectations of 47.5. November’s print remained below the threshold of 50.0whicht denotes industry expansion, but an improved reading indicates that the US manufacturing sector is contracting at a slower pace.
ISM Services PMI data on Wednesday, on the other hand, were disappointing. ISM Services PMI dropped sharply to 52.1 in November from 56.0 in October against expectations of a 55.7 reading. The US Service sector remained in expansionary territory, as evidenced by a print above 50.0, but the sector’s growth rate is slowing down.
Preliminary GDP data for the third quarter of the year showed that the US economy expanded by only 2.8% in the third quarter of 2024, after rising by 3.0% in the second quarter of the year and by 1.4% in the first quarter of the year, while markets were anticipating 3.0% growth in the third quarter of 2024. The US economy is suffering from prolonged tightening, raising recession concerns.
The most important data coming up this week is the Ulaborur data. ADP Non-Farm Employment Change on Wednesday showed that fewer new jobs opened in November, indicating that the US labor market is weakening. ADP Non-Farm Employment Change fell to 146K in November from 184K in October against expectations of 152K. JOLTS data on Tuesday, however, showed that the number of job openings in October rose to 7.74M from 7.37M in September, beating market expectations of 7.48M.
Non-farm payrolls, or NFPS on Friday are this week’s most highly anticipated fundamentals and are likely to cause volatility in the price of the dollar. Friday’s data are expected to show significant improvement in NFPs in November compared to October’s reading. If market estimates come true, the dollar is likely to gain strength.
EUR/USD traded sideways on Wednesday close to the 1.051 level. If the EUR/USD pair declines, it may find support at 1.042, while resistance may be encountered near 1.059.
The Euro steadied on Wednesday ahead of the vote of no confidence in France. France’s Prime Minister, Michel Barnier activated a special legislation which allows him to surpass the French Parliament and have his social security bill adopted on Monday. This move backfired against the French Prime Minister, however, as the two main parties of the government’s opposition put forward a no-confidence vote, that could topple the French government. Increased volatility in the EUR/USD pair is expected on Thursday as markets will digest the results of the vote of no confidence and likely the formation of a new government in France.
On the data front, EU Services PMI data released for the Eurozone on Wednesday exceeded expectations, providing support for the Euro. EU Final Services PMI rose to 49.5 in November from 49.2 in October, exceeding expectations of a 45.2 print. The Services PMI index remained below the threshold of 50.0 in November, indicating that the sector continues to contract, but at a reduced pace. France’s PMI Services readings led the positive EU data on Wednesday. France’s economic outlook is improving, which might serve to minimize the impact on the Euro from the country’s recent political instability.
Eurozone inflation remains above the ECB’s 2% target and may prevent the ECB from cutting interest rates in December. Eurozone inflation rose to 2.3% year-on-year in November from 2.0% in October, which was in line with expectations. Core CPI, which excludes food and energy, remained steady at 2.7% in November, against expectations of a 2.8% print.
Flash GDP data showed that the Eurozone economy expanded by 0.4% in Q3 of 2024, rising from 0.2% in Q2. The Eurozone economy also expanded by 0.3% in the first quarter of 2024. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
The ECB lowered its benchmark interest rate by 25 basis points in October, bringing its main refinancing rate to 3.40%. The ECB started its easing cycle in June, lowering interest rates by 25bps for the third time this year in October.
Most ECB policymakers’ speeches this week have so far been dovish, raising expectations of another rate cut in December. On Monday, ECB member Phillip Lane hinted that the central bank should move forward with additional rate cuts. On a similar note, ECB’s Martins Kazaks stated on Monday that rate cuts must continue. ECB policymaker Robert Holzmann also delivered a dovish speech on Tuesday, stating that he is in favor of a 25-basis point rate cut in December.
ECB President Christine Lagarde, however, was more cautious while testifying before the European Parliament's Committee on Economic and Monetary Affairs on Wednesday. Lagarde stated that weak economic growth is expected shortly, while inflationary pressures are likely to rise temporarily in the fourth quarter of the year. Lagarde maintained her cautious stance and has not committed to future rate cuts, emphasizing that the ECB will adopt a data-dependent approach.
GBP/USD edged higher on Wednesday, rising from 1.267 to 1.261. If the GBP/USD rate goes up, it may encounter resistance at 1.275, while support may be found near 1.250.
At the latest BOE policy meeting, MPC members voted with a strong majority of 8-1 to cut rates to 4.75%. Bank of England Governor Andrew Bailey stated that the central bank intends to adopt a gradual approach to cutting interest rates. This would give policymakers time to assess the impact of the Government’s new budget on inflation.
In an interview with the Financial Times on Wednesday, Bailey stated that he sees four BOE rate cuts in 2025. Bailey did not give any information about the BOE’s immediate plans in December and markets are expecting that the central bank will keep interest rates steady this month. The Sterling declined immediately after Bailey’s statement but recovered soon after as markets had time to digest the news.
The BOE delivered its biannual Bank Stress Test report on Friday. According to the report, investors are expressing concerns about the sustainability of rising government debt, which may cause volatility in financial markets. The stress tests, however, showed that the British banking system remains robust and could survive a severe global economic downturn.
The BOE also warned that higher trade barriers could inhibit global economic growth, causing volatility in financial markets. Donald Trump’s threats of new tariffs against BRICS countries on Monday put pressure on the Sterling.
On the data front, Final Services PMI data for the UK came in higher than expected on Wednesday, boosting the Sterling. The British Services sector moved to expansionary territory in November, with a PMI print of 50.8, exceeding the threshold of 50.0 that denotes industry expansion, as well as market expectations of a print of 50.0
British inflation data came in hotter than anticipated last week, squashing rate cut expectations in December. UK CPI data showed an uptick in British inflation in October, which may prevent the BOE from cutting interest rates further. Headline inflation in the UK rose to 2.3% year-on-year in October from 1.7% in September, surpassing expectations of 2.2%. Core annual inflation, which excludes food and energy, climbed to 3.2% in October from 3.2% in September against 3.1% anticipated.
GDP data showed that the British economy contracted by 0.1% % in September, falling short of expectations of 0.2% expansion. In addition, Preliminary GDP data for the third quarter of the year showed that the British economy expanded by just 0.1% against expectations of 0.2% expansion. In addition, GDP data for the second quarter of 2024 were revised downward to reflect 0.5% growth against initial estimates of 0.6%.
The Yen was under pressure on Wednesday and USD/JPY rose from 149.5 to 151.2 before paring some of the day’s gains and dropping back to 150.5. If the USD/JPY pair declines, it may find support at 148.4. If the pair climbs, it may find resistance at 154.5.
The USD/JPY has been trading precariously close to the 150.0 level, which is considered to be a line in the sand for an intervention in support of the Yen. Expectations of a BOJ rate hike in December are fluctuating strongly this week, creating volatility in Yen price.
The BOJ maintained its current monetary policy guidelines steady and its interest rate at 0.25% at its latest policy meeting. The BOJ had pivoted to a more hawkish policy at its meeting in July, raising interest rates by 15 basis points, the BOJ’s largest rate hike since 2007. The BOJ had already hiked interest rates once more in March, ending its negative interest rate policy.
BOJ Governor Kazuo Ueda’s forward guidance was hawkish. Ueda hinted at another rate hike in the following months, if economic and inflationary conditions are met. In addition, Ueda stated on Saturday that the next interest rate hikes are nearing, in the sense that economic data are on track. Ueda also stressed that the BOJ will lower monetary easing at the appropriate time to ensure that Japan’s inflation rises to 2%.
BOJ rate hike expectations in December went up to 60% on Monday, boosting the Yen. On Wednesday, however, media reports that the BOJ will likely wait until the start of the new year to hike interest rates brought rate hike expectations down to 40%. Markets are not convinced that the BOJ will raise interest rates this month, putting pressure on the Yen.
The BOJ will likely pivot to a more restrictive monetary policy in the following months, which will provide some much-needed support for the Yen. At the same time, the US is easing interest rates, moving towards a less restrictive monetary policy, which is slowing down the USD/JPY’s ascent.
Inflation data for Japan came in hotter-than-expected last week, raising the odds of a BOJ rate hike in December, and providing support for the Yen. Tokyo Core CPI data on Friday showed an uptick in Japan’s inflation in November. Tokyo Core CPI came in at 2.3% annually in November, beating expectations of 2.0% and far exceeding October’s print of 1.8%. In addition, Headline inflation in Japan rose by 2.3% year-on-year in October against expectations of a 2.2% print according to CPI data released on Wednesday. BOJ Core CPI data, however, showed a drop in Japan’s inflation. BOJ Core CPI dropped to 1.5% year-on-year in October from 1.7% in September against expectations of 1.8%.
Japan’s economy expanded by 0.2% in the third quarter of the year, down from 0.7% in the second quarter. The Japanese economy has started to expand, after shrinking by 0.5% in the first quarter of the year.
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Written by:
Myrsini Giannouli
présence dans l'industrie en tant que fournisseur de liquidités
et une exécution fiable
séparés
de premier ordre
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