After wrapping up its worst week since mid-July, the United States Dollar continues to trade on the back foot this morning, down slightly against most major currencies.
Overview
Traders are focused primarily on sentiment surrounding the Federal Reserve as expectations increase that the central bank is, in fact, done hiking interest rates and could begin cutting as early as March of next year. Chances for a cut that soon are hovering close to 30%, but this has substantial potential to change in the month preceding December’s meeting. Fed-speak as of late has leaned a bit more hawkish than some anticipated, but when coupled with flat inflationary data, it’s hard to really read which direction the central bank is leaning. More clues should emerge later this week when the minutes from November 1’s meeting and decision are released.
While cooling inflation is definitely what the Fed is looking for, it’s unclear so far whether this is because of the tightening the central bank has instituted so far or if it’s due more to cooling demand from the economy as a whole. We do not necessarily agree with the calls of some major economists for a short “shock” recession for the last quarter of this year, but it is clear that the macroeconomic picture in the US is a bit weaker than its superheated streak over the summer, but this falls in line with its peers in the UK and the Eurozone, teetering on the brink of recessions. Oil prices across the world, too, are down from their highs in October, a further sign of cooling global demand.
Though the Thanksgiving holiday in the US on Thursday may keep markets relatively quiet this week, we’ll be watching the release of Fed minutes tomorrow, University of Michigan consumer sentiment and inflation expectations Wednesday, and US PMIs due out Friday.
What to Watch Today…
JPY ⇑
Japanese Yen is leading gains against the Dollar this morning, nearly a percent stronger this morning and hitting its strongest point against the USD since early October. Markets remain unsure of what, if anything, the Bank of Japan will do to intervene on behalf of the still historically weak currency, but the language used by both the bank and the nation’s currency authority as of late has focused more on volatility rather than true weakness.
AUD ⇑
Continuing their trends of very high-volatility trading sessions as of late, the Australian and New Zealand Dollars are both roughly half a percent stronger against the USD this morning. Risk sentiment around the world seems to be fairly strong this morning, and oil prices are set to open a bit higher than Friday’s close, buoying the Antipodean currencies. The Reserve Bank of Australia is also set to release its minutes from this month’s meeting on Tuesday.
