The DXY Index depreciated for the first time in seven sessions by 0.5% to 106.2. Markets are still digesting the Trump Trade. Bitcoin has been around 90k, leading some players to pick up gold at oversold levels. The US Treasury 10Y yield has stalled around 4.40-4.50% after having risen on fears that Trump’s tariffs and tax cut plans would reignite inflation. Fed officials have largely ignored the speculation, keeping to September’s script to remove monetary policy restrictions on expectations for inflation to decline to the 2% target next year. The futures market has not abandoned the prospect of another 25bps cut at the FOMC meeting on December 18.
EUR/USD rebounded by 0.7% to almost 1.06, its first rise in seven sessions. The market has been too hasty in expecting the European Central Bank to lower its deposit facility rate below the 2% inflation target in the second half of 2025. ECB member Yannis Stournaras (Greece) expects inflation to reach the 2% target in 1H25 but estimated the neutral rate at around 2%. Gabriel Makhlouf (Ireland) pushed back expectations for the ECB to lower rates by a larger 50 bps on the weak Eurozone economy. More so after the German economy surprised by avoiding recession, expanding by 0.2% QoQ sa in 3Q24, beating the consensus for a 0.1% contraction from the 0.3% decline in 2Q24. Joachim Nagel (Germany) saw Trump’s tariff plan potentially lowering Germany’s output by 1% of GDP but also keeping inflation high via a further fragmentation of the global economy.
The Fed and the ECB are awaiting actual details before factoring in Trump’s planned policies. Until then, central bankers are debating if they pose a higher risk to inflation or growth. Meanwhile, Trump’s first test is getting his cabinet nominations past the Senate. The New York Times reported that Trump admitted that the Senate may not confirm his nomination for Matt Gaetz as attorney general.
Quote of the Day
“Enthusiasm is everything. It must be taut and vibrating like a guitar string.”
Pele
November 19 in history
Soccer legend Pele scoffed his 1000th goal in 1969.
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