Important calendar events
The dollar dipped on Monday, and the dollar index dropped from 107.5 to 106.8. US treasury yields declined, with the US 10-year bond yield falling from 4.41% to 4.28%.
News that President-elect Donald Trump has nominated hedge fund manager Scott Bessent for US Treasury Secretary put pressure on the dollar on Monday. Bessent is known for his cautious stance and is considered a safe choice to take over from Janet Yellen as the next US Treasury Secretary. Bessent’s appointment is considered by markets as likely to promote economic growth, which is lowering the demand for safe-haven assets and putting pressure on the dollar.
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 had already 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.
Rate cut expectations have been fluctuating in the past couple of weeks due to ambiguous Fedspeak. FOMC members seem to be divided on the rate cut outlook, with some policymakers delivering hawkish speeches and others adopting a more dovish stance. Market odds of future rate cuts reflect this divergence in policymakers’ opinions, with odds of a December rate cut hovering near 55%.
The minutes of the Fed’s November meeting are scheduled to be released on Tuesday and will provide valuable insight into the Fed’s rate outlook. Since market odds of a rate cut in December are approximately 50-50, traders will focus on the minutes of the previous meeting to figure out how FOMC members are likely to vote in December’s meeting.
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. Important inflation data coming up on Wednesday will provide information on the US inflation outlook.
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 dollar has been supported by increased safe-haven demand as the crisis in Russia threatens to escalate. Tensions between Russia and Ukraine flared last week and safe-haven demand rose. Geopolitical tensions cooled over the weekend, however, leading to a drop in safe-haven demand. In addition, reports that Israel and Lebanon have agreed to the terms of a peace deal that will end the Israel-Hezbollah conflict lowered the appeal of safe-haven assets on Monday.
Important US fundamentals are scheduled to be released this coming week, which are likely to cause volatility in the price of the dollar. CB Consumer Confidence on Tuesday is a leading indicator of economic activity and health. The CB index on Tuesday is expected to show that consumer confidence in the US has risen in November, which will prop up the dollar. On the other hand, the sales of new homes in the US are expected to decrease in October, indicating declining economic growth.
The most highly anticipated data of the week are due on Wednesday. These include Preliminary GDP data for the third quarter of the year, which according to earlier estimates, are expected to show economic expansion by 2.8%, slightly down from 3.0% in the second quarter of the year.
Core PCE Price Index data are also due on Wednesday. This is the Federal Reserve’s preferred inflation gauge and influences the central bank’s policy outlook. Annual Core PCE Price Index dropped to 2.6% in September from 3.6% a year ago, indicating that price pressures in the US are easing. Core PCE Price Index data on Wednesday, however, are expected to show that US Core PCE inflation rose by 0.3% in October up from 0.2% in September. If market estimates come true, it will be an indication that disinflation in the US is not progressing sufficiently. This will likely drive rate cut odds down, boosting the dollar.
Thursday is a bank holiday in the US in observance of Thanksgiving Day and low volatility is expected on that day for the dollar.
EUR/USD surged from 1.041 to 1.047 on Monday’s opening as the dollar plummeted. The currency rate then traded sideways throughout the day, oscillating around the 1.049 level. If the EUR/USD pair declines, it may find support at 1.033, while resistance may be encountered near 1.061.
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.
ECB President Christine Lagarde has not committed to future rate cuts. A 25-basis point rate cut in December, however, is already priced in, with some analysts predicting an even sharper 50-bp rate cut in December.
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.
Inflationary pressures in the Eurozone are not cooling as fast as expected. Eurozone inflation rose to 2.0% year-on-year in October from 1.7% in September, against expectations of 1.9%. Core CPI, which excludes food and energy, also came in higher than anticipated, remaining steady at 2.7% in October, against expectations of a 2.6% print.
This week, Flash CPI data for the EU are due on Friday and are expected to show an uptick in inflation in November. Headline inflation is expected to rise to 2.3% year-on-year in November and Core CPI is expected to rise to 2.8% annually.
GBP/USD jumped from 1.252 to 1.258 early on Monday as the dollar dipped. The currency rate edged lower to 1.256 later in the day and dropped sharply at the end of the day. If the GBP/USD rate goes up, it may encounter resistance at 1.271, 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.
BOE Governor Andrew Bailey testified on inflation and the economic outlook before the Parliament's Treasury Committee last week. Bailey stressed that Services inflation is still above a level that's compatible with on-target inflation and that a gradual approach to policy normalization is required. Bailey’s remarks were perceived by markets as hawkish and BOE rate cut expectations in December dropped.
On a similar note, BOE’s Clare Lombardelli stated on Monday that satisfactory progress on disinflation has been made and that she supports a gradual removal of monetary policy restrictions.
In addition, 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%.
This week there are no major fundamentals coming up for the UK. The Sterling is likely to be influenced by MPC members’ speeches and especially by BOE Governor Andrew Bailey’s press conference about the Financial Stability Report on Friday.
USD/JPY plummeted from 154.8 to 154.2 on Monday’s opening, driven by the dollar’s decline. USD/JPY traded with high volatility later on Monday, moving around the 154.1 level. If the USD/JPY pair declines, it may find support at 153.2. If the pair climbs, it may find resistance at 155.9.
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. Ueda emphasized, however, that the BOJ’s policy will be data-driven and stated that the central bank will scrutinize data before each policy meeting.
The USD/JPY rate is trading precariously close to the key 155.0 level, raising intervention concerns. The BOJ will likely pivot to a more restrictive monetary policy by the end of the year or at the beginning of 2025, 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.
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.
CPI Inflation data for Japan came in hotter-than-expected last week, raising the odds of a BOJ rate hike in December. Headline inflation in Japan rose by 2.3% year-on-year in October against expectations of a 2.2% print.
Services Producer Price Index (SPPI) data are due on Tuesday. SPPI is a leading indicator of consumer inflation since producers’ prices are passed down to consumers. Tuesday’s SPPI data are expected to show a drop to 2.5% annually in October from 2.6% in September.
More importantly. BOJ Core CPI is also due on Tuesday and markets estimate that it will go up to 1.8% in October from 1.7% in September. If market forecasts come true, they will reinforce expectations of a BOJ rate hike in December, which will boost the Yen.
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Written by:
Myrsini Giannouli
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और विश्वसनीय निष्पादन
ग्राहक धन
ग्राहक सहायता
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