After taking traders somewhat by surprise and posting a moderate gain during yesterday’s session, the United States Dollar is essentially flat with a slight negative tinge on the morning against most major currencies, with a few notable outliers.
The risk-off mood continues to dominate markets to wrap this year – US equity futures are slightly down, gold prices are rising once again, and European stocks are largely following the global trend downward.
The biggest overnight news came, surprisingly, from the Bank of Japan’s Governor Kazuo Ueda, who shocked markets by implying that there is quite a bit of potential for the central bank to end its negative interest rates within a few months – the last central bank in the world to do so. Though it’s possible that Ueda’s throwaway response to a question was just that, his comments have sent the Yen soaring after he said that managing monetary policy will get more difficult over the next year. We, however, do not necessarily trust that this language does in fact constitute a material change in policy – previous statements from the BoJ have focused more on the macroeconomic picture’s strength, and Q4’s data has not necessarily reached the threshold to merit a policy change. His words, though, have prompted a larger reassessment of bets on rate cuts around the world. For every major central bank, traders may have been a bit overzealous in pricing in cuts before summer of next year, and Fed futures are responding in kind in addition to bets on the Bank of England and European Central Bank.
Still to come this week is a slew of US employment data tomorrow morning, set to directly impact next week’s Federal Reserve meeting and rate decision. While a full 25 basis points of easing is due as soon as May 1 of next year out of the US, any positive surprise (or vice versa) could change those expectations and set the Dollar on a more concrete course.
What to Watch Today…
- US Nonfarm Payrolls November, Friday 8:30 AM
- Monex USA Online is always open.
After running up the score against the USD for the past couple of days, Mexican Peso is leading the rest of Latin America weaker this morning after inflation data came in slightly below expectations. Mexico’s ultra-high (comparatively) interest rates have made it quite an attractive investment for longer-term returns, but downside surprises like this one do raise the threat that Banxico could cut interest rates sooner rather than later. Current bets have placed the beginning of an easing cycle in the first quarter of 2024.
The single currency is mildly appreciating against USD after facing down five straight sessions of losses, more of a retracement than due to any real positive signs from the Eurozone economies. GDP this morning came in close to in line with expectations, contracting 0.1% in Q3 and showing no growth on an annual basis. Several voting members of the European Central Bank have emphasized over the last few weeks their attention to downside risks to the economy as a whole, but as inflation remains elevated, next week’s meeting of the ECB remains live.