After quite the roller coaster in FX pricing through last week, the United States Dollar starts the first week of December with a bit of buoyancy.
Overview
Equity markets struck a tone of optimism to open the month after Federal Reserve Chair Jerome Powell gave his ‘strongest signal yet’ that the central bank is finished raising interest rates. Though traditionally this would depress the Dollar, it seems that USD prices had already baked this expectation into the proverbial cake and paid more attention to the other side of Powell’s speech – that the Fed is unlikely to cut interest rates any time soon and expectations thereof should be tamped down.
As it stands now, investors’ expectations of rate cuts out of the US may well be overblown, with a full cut priced in by the May 1, 2024 meeting and a 60% chance on March 20th. Powell has repeatedly attempted to shift these expectations, but market odds remain stubborn. Key data releases on US employment, factory and durable goods orders, and PMIs through this week could prove to be a pivot point for these chances, if the US economy can continue to show strength, especially in the employment sector. Rate cuts from the Fed and its central bank peers around the world will be the key determinant of FX pricing through next year – November’s swing weaker for USD was indicative of this preemptive price shift, but as it stands now markets will have to see if these projected cuts actually materialize, and from which central bank they come first.
What to Watch Today…
- S&P Global Composite PMI November, Tuesday 8:30AM
- 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.
GBP ⇓
Pound Sterling is starting the week broadly weaker against both the Dollar and the Euro after comments from the Bank of England’s Swati Dhingra showed that the central bank’s primary economic focus is “getting growth up.” Fitch Ratings has maintained its negative outlook on the UK’s credit, and the economy continues to teeter on the brink of a recession, fueling bets that the Bank of England may cut interest rates sooner rather than later. PMI data for the UK is due out tomorrow, which should provide the Pound with more direction.
CAD ⇓
After reaching a two-month high last week, the Loonie is retreating in kind with most currencies against the Dollar this morning ahead of the Bank of Canada’s policy decision on Wednesday. Though extremely unlikely that the BoC will make any policy changes, these meetings do usually prove to be a high-volatility event and we expect some swings in CAD prices throughout the week. Canadian economic data has been wildly mixed over the last two months, and oil prices are falling this morning, depressing the currency.
