The United States Dollar this morning is continuing yesterday’s trend and slyly strengthening across the G10 board before several data releases due out later this morning.
Overview
The movement we’ve seen the last few days is in line with our expectations for the end of 2023 – FX markets are reconsidering November’s massive losses for the Dollar as a bridge too far and responding in kind before the end of this calendar year. As this iteration of central bank meetings heats up, we are likely to see a substantial shift in market bets on when exactly interest rate cuts around the world will take place that could whipsaw the Dollar.
As it stands now, investors are pricing in just north of 125 basis points of interest rate cuts from the Federal Reserve through the 2024 calendar year. We, however, do not believe that such an aggressively dovish schedule will come to fruition. Market pessimism dominated the month of November for the Dollar. Though the Fed is likely to cut interest rates at some point next year, yes, the first move is unlikely to come as soon as March and a move lower of 1.25% is too aggressive for the central bank’s current ‘wait-and-see’ stance. FX pricing seemed to be a bit overzealous in their view through November and this young month’s price action proves that. Macro risks do exist for the US economy, yes, but not to the same extent as many of the US’ international peers, so the Fed is unlikely to move as early or as often as, say, the ECB or the Bank of England. Still to come, though, this morning are key PMI releases that will provide some clues as to the overall health of the US economy leading into the Fed’s 2-day meeting next week.
What to Watch Today…
- Bank of Canada Rate Decision, Wednesday
- ADP Employment Change November, Wednesday 8:15 AM
- Euro-zone GDP, Thursday
- US Nonfarm Payrolls November, Friday 8:30 AM
- Monex USA Online is always open.
EUR ⇓
The single currency continued to weaken against the Dollar this morning after noted hawk from the European Central Bank Isabel Schnabel essentially took any possibility of interest rate hikes off the table. Though this is not exactly ‘new news,’ Schabel’s words essentially set it in stone and the Euro is responding in kind, taking a fifth straight day of losses against the Dollar. The ECB meets next week and will release its decision the day after the Federal Reserve, and though no interest rate changes are expected, the central bank’s statement after the fact will be watched for clues on potential cuts.
AUD ⇓
The Australian Dollar is the biggest loser in the G10 this morning after the Reserve Bank of Australia held interest rates steady overnight in a move markets have termed as dovish. Governor Michele Bullock noted that inflation is moderating back down to expectations and wage growth is likely to stay relatively steady, keeping the Antipodean currencies depressed this morning. Current expectations have the RBA as one of the very few central banks to resist cuts through the first half of 2024, but this is only because they did not hike as aggressively as many of their peers around the world.
