Forex
Dollar edges higher ahead of payrolls release; euro slips lower
Investing.com – The U.S. dollar edged higher Friday, continuing October’s strength, ahead of the release of the widely-watched payrolls report.
At 05:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.025, after gains of well over 2% last month.
Dollar awaits payrolls release
Data released on Thursday showed that inflation by the Fed’s targeted measure, the year-over-year increase in the , came in at 2.1% in September, down from an upwardly revised 2.3% in August, and close to the Fed’s 2.0% target.
Attention now turns to the US jobs report for October, due later in the session.
Economists are estimating that slipped to 106,000, down from 254,000 in the prior month, while the is tipped to match August’s pace of 4.1%. growth is also seen slowing to 0.3% on a month-on-month basis.
However, these numbers could be open to volatility given the potential impact of recent devastating hurricanes and ongoing labor actions.
The is widely expected to cut interest rates by a quarter percentage point next week, and there would have to be a major surprise from the payrolls release given futures contracts put the chances of a 25 basis point cut next week at 94.7%.
“We expect a slightly negative impact on the dollar, as some of the strength associated with the previous jobs report is priced out and markets may push the Fed pricing back to 50bp of easing by year-end,” said analysts at ING, in a note.
Also of interest has been the run-up to the presidential election on Tuesday, with the dollar benefiting from trades betting Republican candidate Donald Trump will win.
However, the race with Vice President Kamala Harris appears very close, and thus a victory by the Democrat could spark a rash of trading unwinds.
Caution over ECB rate cuts?
In Europe, traded 0.2% lower at 1.0861, handing back some of the previous session’s euro gains after data showed that the eurozone’s accelerated more than expected in October, bolstering the case for caution in European Central Bank interest rate cuts.
The has cut interest rates three times this year, and is widely expected to cut again as the year draws to an end.
“EUR/USD is starting to look a bit expensive in the upper half of the 1.08-1.09 range, and barring a US jobs data-induced push today, we favour some depreciation in the pair into US Election Day, with a move back to 1.0800 as being completely in line with a wide rate differential in favour of USD,” ING added.
rose 0.1% to 1.2917, with traders still digesting the latest UK budget, with British finance minister Rachel Reeves launching massive tax increases.
“Our view is that sterling can drop a bit further as the readjustment to higher bond supply runs its course, but with GBP short-term swap rates having received a lift from the BoE repricing (only one cut expected in 2024 now), rate differentials can soon offer a floor to the pound,” ING added.
Yen slips lower
rose 0.5% to 152.72, with the yen handing back earlier gains after the Bank of Japan maintained ultra-low interest rates but said risks around the U.S. economy were somewhat subsiding.
Governor Kazuo Ueda’s remarks were seen as less dovish than those made before the meeting that the BOJ could “afford to spend time” scrutinising the fallout from risks such as U.S. economic uncertainties.
rose 0.1% to 7.1242, despite China’s manufacturing activity swinging back to growth in October, a private-sector survey showed on Friday.
The rose to 50.3, largely matching the official PMI released earlier in the week.
Forex
Aussie dollar outlook hinges on US trade policy under Trump, says BofA
Investing.com– There are three potential scenarios for the Australian dollar through mid-2025, contingent on U.S. policy under President-elect Trump, analysts at Bank of America (BofA) said in a note, stating a wide range of outcomes for the currency, reflecting uncertainties in global trade.
In BofA’s baseline scenario, the AUD is expected to weaken to 0.63 U.S. dollar (USD) by mid-2025. This forecast assumes a continuation of tariff-driven trade policies similar to Trump’s first term, alongside moderate gains in U.S. equities, with the projected to deliver double-digit returns.
A gradual increase in U.S.-China tariffs, coupled with a devaluation of the (CNY), is anticipated to exert downward pressure on the AUD. Industrial metals, a key driver for Australia’s economy, are also expected to decline, adding to the currency’s challenges.
BofA’s second, and a more severe scenario envisions a full-blown trade war, where tariffs significantly disrupt global trade. In this situation, the AUD could tumble to 0.55 USD, the bank warned. It cites, a sharp devaluation of the CNY and plummeting industrial metal prices, as major headwinds.
This scenario assumes broader global equity market declines and a more pronounced impact on Australian growth and inflation, potentially keeping the AUD below 0.60 USD for an extended period.
Thirdly, if the incoming administration adopts policies akin to Ronald Reagan’s 1980s approach—characterized by tax cuts, deregulation, and limited trade disruptions—the AUD could climb to 0.70 USD, BofA analysts said. Such policies could spur a rally in U.S. equities and stabilize the CNY, creating a favorable environment for the Australian currency.
BofA underscores the AUD’s heightened sensitivity to global risk sentiment and its evolving relationship with commodity prices and the CNY. Analysts emphasize that significant shifts in U.S. policy will likely dictate the trajectory of the AUD in the near term.
Forex
UBS lowers USDJPY forecasts to 145 by end-2025 and end-2026
Investing.com — UBS has revised its forecasts for the , lowering expectations to 145 for both end-2025 and end-2026, down from previous estimates of 157 and 161, respectively.
This adjustment reflects growing confidence in the Bank of Japan’s (BOJ) ability to implement further rate hikes, aligning with UBS economists’ call for a 25 basis-point hike during the December 19 policy meeting.
“Rising confidence in the BOJ’s ability to hike rates further has been the key driver of the move,” UBS analysts noted, as the yen continues its recent outperformance against the dollar.
The revision to UBS’s USDJPY outlook also aligns with the bank’s broader FX trading views. The firm remains short , expecting it to decline to 151 by the end of 2025 and to 145 by the following year.
In the broader G10 FX market, UBS observed a period of stability in recent weeks, with the USD trading near mid-November highs.
This calm persisted despite President-elect Donald Trump’s tariff-related announcements on social media. While markets initially viewed these proclamations as a negotiation tactic, UBS warned that this sentiment might be “short-lived.”
Additionally, political uncertainty in Europe, including a no-confidence vote against the French government, could weigh on the euro.
“We see potential for a larger and more sustained impact now than in June, given the weaker growth backdrop and dovish ECB repricing,” UBS analysts explained. This situation supports their end-2025 target of 1.04.
Forex
Dollar shows strength; euro retreats ahead of French no-confidence vote
Investing.com – The US dollar rose Wednesday, while the euro retreated ahead of a vote of no-confidence in France later in the day that is likely to topple the fragile coalition government.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 106.465.
Dollar remains compelling
The dollar has been in demand Wednesday, boosted by its safe-haven status amid political turmoil in both South Korea and Europe as well as ongoing conflicts in the Middle East and Ukraine.
“A lame duck government in Germany and potentially France too today if a no-confidence vote is successful, plus this Korean news, will only add to confidence that the relatively high rates and liquidity make the dollar the most compelling currency in which to park cash balances right now,” said analysts at ING, in a note.
Turning back to macro news, all eyes will be on the report for November later in the session, particularly with the widely watched monthly due for release on Friday.
The release is also on the agenda, as well as a speech from Fed Chair in Washington.
“There is the risk that US macro data softens a little and can drag the dollar a little softer, but taking defensive positions in something like the Japanese yen or Swiss franc can be expensive,” ING added.
Market-implied odds of a quarter-point rate reduction on Dec. 18 last stood at 75%, according to CME’s FedWatch Tool.
Euro pressured by French political crisis
In Europe, dropped 0.1% to 1.0501, with the single currency struggling for support as the French political crisis comes to a head.
French lawmakers are preparing to vote on no-confidence motions later in the day that are all but certain to topple the government, with opposition parties seemingly unable to support Prime Minister Michel Barnier’s recent budget aimed at curbing a hefty budget deficit.
Additionally, data released earlier Wednesday showed that business activity across the eurozone fell sharply last month as the bloc’s dominant sector joined the manufacturing sector in contraction territory.
HCOB’s final for the currency union, compiled by S&P Global and seen as a good gauge of overall economic health, sank to 48.3 in November from October’s 50.0.
“Be it European political risk, weak activity, the threat of trade wars or energy prices creeping higher (EU gas inventories are starting to come under pressure) there are many reasons to be underweight in the euro,” ING said.
traded 0.1% higher to 1.2677, helped by remaining in expansion territory.
Bank of England Governor Andrew Bailey reiterated in an interview published on Wednesday that gradual cuts in interest rates are likely over the next year, adding that the process of falling inflation is well embedded.
“There is still a distance to travel because although inflation came down to target over the summer, we’ve been saying for a while that … we were probably going to go back a bit above target,” Bailey said.
South Korean won stabilizes
In Asia, stabilized at 1,414.26, after surging as high as 1,444.05 won in overnight trade – its highest level since November 2022.
South Korean President Yoon Suk-Yeol declared martial law on Tuesday in an effort to counter “anti-state forces” among his political opponents. However, the move faced immediate backlash, including parliamentary rejection and public protests, leading him to revoke the measure within hours.
The won also pared initial losses as South Korea’s central bank held an emergency meeting to stabilize the domestic market.
climbed 0.7% to 150.68, while slipped 0.2% to 7.2730, with the Chinese currency bouncing from the previous day’s low of 7.3145, the weakest since November of last year, helped by a stronger-than-expected central bank midpoint fixing.
slumped 1% to 0.6421, falling to its lowest level since early August after data showed Australia’s economy grew less than expected in the third quarter, sparking increased bets that the Reserve Bank will cut interest rates early in 2025.
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