USD rebounds for second day
The US dollar jumped higher overnight – extending its recent rebound to a second day – as data continued to signal that the US economy remains the home of exceptionalism.
As growth numbers slow around the globe, US personal consumption and expenditure (PCE) and job numbers were reported in line with expectations while the Chicago PMI surged from 44.0 to 55.8.
The US dollar gained 0.7% in a swift short-term trend change.
The USD/JPY gained 0.7% while the USD/SGD was up 0.3%. The USD/CNH was flat.
The AUD/USD fell 0.2% as the pair extended a reversal from four-month highs. The NZD/USD was flat.
Euro crumbles as inflation starts to turn
The euro was sent sharply lower overnight after a big drop in headline flash inflation with the annual rate falling from 2.9% in October to 2.4% in November – the weakest since July 2021.
The EUR/USD fell 0.8%.
Considering the latest developments, markets are pricing in 100 basis points of European Central Bank easing for 2024 with the first rate cut near enough fully priced in for April. However, the disinflationary trend opens the door for a March cut and with 10 basis points priced in, there is room for a dovish repricing should overall inflation figures come in lower today.
For now, this has dragged EUR/USD back away from the $1.10 handle with technical indicators standing near overbought readings.
The euro was weaker in other markets with the AUD/EUR and NZD/EUR both nearing four-month highs.
The GBP/USD was also weaker – down 0.6%.
China PMI to be closely watched
In early trade, we have Indonesian CPI. In November, headline inflation is predicted to increase slightly from 2.6% in October to 2.7% y-o-y. This increase is due to rising food costs, which include red chilis and onions, exceeding the prices of non-subsidized fuel, which have decreased in tandem with decreasing crude oil prices. Additionally, we anticipate a little uptick in core inflation from 1.9% to 2.0% year over year, depending on demand during the end-of-year celebrations. We are more negative on the IDR due to the deteriorating external picture.
The Caixin manufacturing PMI, which tracks more exporters and SMEs in China’s eastern coastal areas, is predicted to rise from 49.5 in October to 49.8 in November. From 1 to 20 November, Korea’s y-o-y exports to China increased to -2.4% from -9.6% in October, while imports increased to -2.6% from -6.4%. The increase in China-Korea trade, however, may have been aided by a low base from the previous year, and we think the supply chain decoupling and declining external demand will continue to be major obstacles. We also observe that, according to the China Containerized Freight Index (CCFI), freight prices are still low in November.
Our risk bias on Chinese yuan remains more positive — corporate USD selling flows tend to pick up towards year-end/pre-Chinese New Year season and support seasonal strength in CNY FX.
Greenback stages comeback
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 November – 2 December
All times AEDT
Have a question? [email protected]
*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.
