The United States Dollar is trading slightly softer this morning after substantial strengthening Monday and Tuesday as traders around the world change their rate-cut bets for various central banks.
Overview
Though no major bodies are expected to cut rates during this current cycle, expectations have shifted to sooner rather than later for, notably, the European Central Bank and the Bank of England compared to where they were last week. It seems that expectations for the Fed shifted first last month, depressing the Dollar through the month of November, but now the rest of the world is catching up and has given USD a boost.
As it stands now, traders are expecting up to 150 basis points of cuts from the European Central Bank through 2024, starting as early as March. The Fed’s first cut is seen to come in May, followed by the Bank of England in early June. This is essentially a function of how long these respective economies can stay out of recessionary territory – Europe’s situation, at the moment, appears the most dire. Continued soft data out of France and Germany have changed the calculus for the region, and the single currency has responded in kind with its worst daily losing streak since July. Similarly, the Bank of Canada meets today and is expected to both hold interest rates steady and signal the true end of its hiking cycle. The first cut from the BoC is expected by April. All of these shifting expectations are serving to reinforce the narrative that the United States is not facing nearly as dire of a situation as its peers, strengthening the Buck to wrap up the year.
Though substantial data releases from the US do remain this week, we don’t expect, say, a sudden collapse of the US jobs market that would once again change when exactly a rate cut from the Fed would happen. China’s dim economic situation, as well, continues to dampen risk sentiment as Moody’s threatens to downgrade the rating of Chinese sovereign bonds, and gold prices are once again on the rise as investors assess the global ‘doom-and-gloom’ mood.
What to Watch Today…
- Euro-zone GDP, Thursday
- US Nonfarm Payrolls November, Friday 8:30 AM
- Monex USA Online is always open.
USD ⇓
The traditional safe haven currency got a boost this morning and is just shy of a quarter of a percent stronger against USD. Though bets on interest rate cuts have cheered some risk-sensitive investors, the global outlook still remains relatively grim and is boosting CHF. Continued news out of Israel and Gaza of further ground operations is keeping the world on edge, and flailing Chinese growth prospects are depressing sentiment as well.
AUD ⇑
Proving its mettle as one of the most volatile currencies in the G10, the Australian Dollar has rebounded overnight and gained just north of half a percent against USD this morning. After the Reserve Bank of Australia left interest rates steady Monday night, Q3 GDP showed quite the mixed bag early this morning. While on a quarterly basis, GDP came in below expectations, the annual reading showed more growth than expected. The RBA is not expected to cut interest rates until September 2024.
