The United States Dollar this morning is trading with a muted but bearish tinge ahead of loads of data releases before many companies across the nation break for the Christmas and New Year’s holidays, with a couple of notable exceptions as the global economic mood continues to sour.
Overview
Though there’s little on the economic calendar for today specifically, major data releases throughout the world will drive price action later this week. Treasuries edged higher this morning and are set to gain for a fifth straight day, the longest stretch since August. US equities are also set to defy the global mood and open higher today. Petrocurrencies in particular are strengthening this morning after oil giant BP announced it would halt its shipping routes through the Red Sea, adding to ongoing supply challenges and driving oil prices up.
This morning’s slight losses for the Dollar still have most major FX prices better than they were after Wednesday and Thursday’s absolute rout of USD. The Bloomberg Dollar Spot Index, a measure of USD strength against a basket of 9 major currencies, has recovered close to half a percent since its low point Thursday afternoon. Multiple Fed governors pushed back to end the week against Chair Jerome Powell’s dovish tone in last week’s meeting, stating that rate cuts are not really up for consideration as of now. The Fed’s new dot plot shows an anticipated 75 basis points of cuts next year, up from 50 previously. Market expectations have gone much further than that, with average bets landing on 150 basis points of cuts. We believe markets have gotten a bit ahead of themselves and lean more toward agreeing with Fed expectations. As it stands now, however, the oddsmakers expect the first cut to come as soon as March, buoyed by Powell’s words last week.
It is possible that the Fed knows more than we do and is expecting Thursday’s GDP and PCE readings to come in below expectations, hence the dovish shift last week. While data calendars are quiet today, the Eurozone and UK both have major CPI readings to release tomorrow and Wednesday, which could change the Dollar’s path to end the year in response.
What to Watch Today…
- Euro-zone CPI, Tuesday
- Bank of Japan Meeting, Tuesday
- UK CPI, Wednesday,
- US GDP Q3 Final, Thursday 8:30AM
- UK GDP Q3 Final, Friday
- Monex USA Online is always open.
AUD ⇑
The Australian and New Zealand Dollars are trading stronger to the tune of half a percent against the Dollar this morning on the heels of higher oil prices overnight and into this morning. As OPEC+ continues to mull further supply cuts, geopolitical tensions in the Middle East continue to ratchet up and pose even greater supply risks. BP, MSC, Hapag-Lloyd, CMA CGM, and Maersk have all announced a suspension of shipping routes through the Red Sea following a string of attacks on ships by Houthi militants from Yemen.
JPY ⇓
Japanese Yen is trading weaker against USD ahead of the Bank of Japan’s meeting and interest rate announcement overnight. JPY got a huge boost a week ago after Kazuo Ueda seemed to imply that there is some chance of ending the last negative interest rate in the G10, but prices have since moderated. It’s quite unlikely that, even if the BoJ does end its negative rate policy, it will happen tonight – it’s much more likely to happen next year and JPY appears in the short term to be overbought.
