Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD’s move extends cooldown
The monster, post-election move in the US dollar extended its cooldown overnight with the USD index down 0.9% overnight and now down 1.9% from last Friday’s two-year highs.
Overnight, the key US PCE release – the Federal Reserve’s preferred measure of inflation – saw headline annual inflation at 2.3% and core inflation at 2.8%. The result was in line with expectations and means the Fed still has the ability to cut rates further.
The weaker US dollar saw most currencies gain with the NZD/USD up 1.0% after yesterday’s 50bps rate cut to 4.25% from the Reserve Bank of New Zealand. The updated forecasts from the central bank, with a mid-2025 forecast for 3.83%, suggests the RBNZ might be slower to cut going forward.
The euro and Japanese yen also saw solid gains overnight while the more trade sensitive currencies like the Aussie and CAD underperformed.
Trump trade appointees key for FX
In trade news, US President-elect Donald Trump appointed Jamieson Greer as the US Trade Representative and Kevin Hassett as the head of the National Economic Council.
“Reining in the country’s massive trade deficit” is reportedly Greer’s top priority. “There is no silver bullet, and in some cases the effort to pursue strategic decoupling from China will cause short-term pain,” he stated in a May hearing.
Conversely, Hassett has advocated for Republican tax-cutting measures. In the past, he chaired the Council of Economic Advisers and was a senior adviser to Trump.
The mix of protectionist trade policy and expansionary fiscal policy could create competing pressures on the USD
We’ve already seen countries heavily dependent on US-China trade (AUD, KRW, TWD, SGD in particular) face and increase in volatility.
BOK may cut; Korean won bears emerge
A policy meeting of the Bank of Korea is scheduled for today.
Given the growing threats to the economic outlook, we anticipate that the BOK will surprise everyone by cutting interest rates by 25 basis points on 28 November.
This is a tight call, though, and we give a surprise cut a 55% probability.
Amid a poor rebound in consumption following the US presidential election, policy worries about the detrimental effects of US trade policy on the export industry are growing.
As we noted earlier, increased volatility is expected for KRW post protectionist trade policy.
Technically speaking, next key resistance for USD/KRW is at 1400, whereas 50-day EMA of 1376 will be the next support.
Kiwi, euro, yen gain as USD eases
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 25 – 30 November
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer
