The United States Dollar is once again quite muted this morning and trading in mixed territory against its G10 peers ahead of the Federal Reserve’s interest rate decision this afternoon
Overview
The FOMC will also release its latest dot plot, setting new expectations for where the central bank believes interest rates will need to go through the year 2025. The last dot plot, released in September, showed the Fed expected to cut interest rates four times or 100 basis points next year, but traders are widely expecting such expectations to be pared back in the face of inflation data that has stubbornly refused to fall back down to the Fed’s 2% target. While the central bank is more than likely to cut interest rates by 25 basis points today, markets will be watching for signals from Powell & company that point to a pause at least for the next meeting in late January. Yesterday retail sales also came in on a monthly basis stronger than expected, once again fueling the narrative of outperformance from the US economy especially when compared with its international peers.
Not to be outdone by domestic central bank action, international markets also saw the release of both UK and Eurozone inflation data for November this morning. The UK’s reading showed that inflation, on an annualized basis, is now the highest in ten months. The month-over-month figure came in at 0.1%, however, which is a marked decline from October. Nonetheless, this appears to have put the final nail in the coffin for the Bank of England tomorrow, already widely expected to hold interest rates steady instead of cutting. The Eurozone’s release, by contrast, showed that month-over-month inflation actually contracted by 0.3%, and year-over-year fell to 2.2%. As the Eurozone continues to grapple with stagnant growth and leadership questions in its two largest economies of Germany and France, this is without a doubt giving the European Central Bank a bit of relief today.
The data calendar for the remainder of the week, after a quiet start Monday and Tuesday, is jam-packed with both central bank meetings and key economic releases from around the world. The Bank of England, Bank of Japan, Norgesbank, and Riksbank are all set to release their latest interest rate decisions tomorrow, and the US will also release the final reading of Q3 GDP Thursday morning. The Fed’s preferred inflation measure of PCE is also due out Friday morning.
What to Watch This Week…
- FOMC Interest Rate Decision, Wednesday 2PM
- Bank of Japan Rate Decision, Thursday
- Bank of England Rate Decision, Thursday
- US Q3 GDP, Thursday 8:30AM
- PCE Price Index, Friday 8:30AM
- Monex USA Online is always open
CAD ⇓
The Canadian Dollar is attempting to tread water this morning after being routed through trading yesterday, now sitting nearly a percent weaker against USD from Monday’s open. The shock resignation of Finance Minister Chrystia Freeland continues to reverberate through markets after she published a resignation letter instead of delivering an expected economic update, slamming “costly political gimmicks” and stoking fear about incoming US President Donald Trump’s economic agenda. Canadian inflation also missed expectations slightly yesterday morning, fueling weakness through yesterday’s session.
JPY ⇓
Ahead of the Bank of Japan’s interest rate decision coming overnight tonight, Japanese Yen is a touch weaker against USD this morning, though trading mixed through the week so far. Traders are positioning ahead of both the Fed and the BoJ’s rate decisions for a hawkish cut from the Federal Reserve. Chatter, however, from the Bank of Japan over the last few days has made markets flip their bets toward a hold from the BoJ instead of a previously-considered hike, which may give JPY further room to run weaker against USD.
