The DXY has been holding a 106-106.7 range after Monday’s 0.7% rebound. DXY ended overnight at 106.34, barely changing from Tuesday’s 106.37. Fed Chair Jerome Powell reckoned the Fed could afford to be a little more cautious in lowering rates towards neutral. His confidence in the US economy was consistent with the Fed’s Beige Book, which reported that economic activity rose slightly in most areas. While it wants more clarity on US President-elect Donald Trump’s actual tariff and immigration policies, the Fed noted that businesses were concerned about the impact of tariffs on inflation after Trump assumes office in January. US ISM Services fell to 52.1 in November, taking a breather after increasing four months to 56 in October from 48.8 in June.
Overall, the market is hesitant to adopt a strong stance on Fed cuts beyond the one currently projected for the FOMC meeting on December 18. Tomorrow, consensus expects US nonfarm payrolls to rebound to 215k in November; markets had brushed off October’s decline to 12k as a distortion due to the hurricanes and strikes. The unemployment rate is expected to stay unchanged at 4.1% for a third month. The Fed enters a blackout period next week, during which CPI inflation is expected to remain unchanged for a fifth time at 0.2% MoM in November, and excluding food and energy prices, a fourth month at 0.3% MoM.
AUD/USD tested the critical 0.64 support level a third time this year. Australia’s GDP growth rose from 0.2% QoQ sa in 2Q24 to 0.3% in 3Q24 but fell short of the 0.5% consensus. For the first time since mid-October, interest rate futures see a more than 50% chance for the Reserve Bank of Australia to start lowering rates in April 2025. On November 28, RBA Governor Michele Bullock said that rate cuts did not require inflation to return inside the 2-3% target; the central bank only needs to be confident about inflation moving sustainably back to target. Despite its rise to 0.6440 yesterday, AUD’s downside risk is intact ahead of next week’s RBA meeting on December 10.
EUR/USD’s range tightened to 1.0480-1.0540 after its 0.8% decline Monday, caught between doubts about a large 50 bps cut at the European Central Bank meeting on December 12 and a political crisis in France. During her hearing at the EU Parliament, ECB President Christine Lagarde told lawmakers that interest rate cuts would continue at an undetermined pace. In the short term, Lagarde expected GDP growth to weaken and inflation to be temporarily higher in 4Q24. For 2025, she expected inflation to return to the 2% target as the economic recovery gathers momentum in 2025. However, Lagarde also acknowledged that the medium-term outlook was uncertain and dominated by downside risks. Meanwhile, the French government collapsed after losing a no-confidence vote by the far right and left opposition parties. President Emmanuelle Macron will likely keep Michel Barnier as caretaker prime minister while looking for a successor, who will likely face the same risk of being voted out.
Quote of the Day
“Keep your face always towards the sunshine, and shadows will fall behind you,”
Walt Whitman
December 5 in history
In 1893, the first electric car in Canada made its debut at the Dixon Carriage works in Toronto.
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