The DXY Index powered higher for a third session to 106, fully retracing its third-quarter decline. Several exchange rates in the DXY basket are near critical levels. EUR/USD bounced off April’s low of 1.06 overnight. GBP/USD fell below 1.28 to 1.2748, near August’s low of 1.2665. The weaker European currencies pushed USD/CHF above 0.88 this week for the first time since late July. USD/JPY is near the psychological 155 level. USD/CAD’s rise stalled at a new year’s high of around 1.3970 this month. Per the 14-day RSI, DXY appears overbought, and many currencies oversold from the Trump Trade.
The USD’s post-election strength has been driven by widening US bond yield differentials against its counterparts because of US inflation worries over Trump’s plans for blanket tariffs, mass deportation of illegal immigrants, and tax cuts. The US Treasury 10Y yield rose by 12.3 bps to 4.43%, fully retracing its third quarter’s decline despite the two Fed cuts in September and November. The S&P 500 Index retreated for the first time in six sessions from profit-taking. The index fell by 0.3% to 5984 overnight after hitting the psychological 6000 level on Monday, driven by rising US Treasury yields after the bond markets returned from the Veteran’s Day holiday. With the futures market pulling back more than 100 bps of next year’s Fed cuts since mid-September, let’s see if investors start to worry about economic growth hopes baked into equities from Trump’s policies. Be alert to profit-taking risks in Bitcoin after this month’s surge to 90k.
Meanwhile, Minneapolis Fed President Neel Kashkari will look at incoming inflation to determine if another 25 bps rate cut is warranted at the December 18 FOMC meeting. Today, markets expect CPI and core inflation to stay unchanged at 0.2% MoM and 0.3%, respectively, in October. The New York Fed reported that 1Y inflation expectations fell to 2.87% in October; consensus had expected a slower decline to 2.97% from 3% the previous month. Fed Chair Jerome Powell and New York Fed President John Williams will speak on Thursday.
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“Life is really simple, but we insist on making it complicated.”
Confucius
November 13 in history
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