USD continues lower but markets price US rates higher for longer

Good morning

Welcome back after the weekend, a long weekend for some readers and just a normal winters weekend for others. We headed up to the peak district just for a night, it’s a very lovely place indeed, it was cold but it was dry, possibly like most areas, only saw rain when we were half way home. Stayed in Buxton which is pleasant enough,, but some of the scenery around Castleton is spectacular.

The weather is looking pretty miserable right now but I do have to remind myself that is December later this week so a bit of cold and rain is only reasonable. Potential for some sleet later in the week and by next weekend it looks like it’ll be getting really cold overnight.

The US dollar weakened again late last week and that move has held so far this morning with GBPUSD trading a high around 1.2620. EURUSD is up as well, but only as far as 1.0950, which means GBPEUR is holding above 1.1500, currently 1.1525. USDJPY is just around the 149.00 area having failed to get above 149.70 a few times last week.

Its quite a busy week calendar-wise, not so much today but looking further ahead we will have a load of central bank officials speaking tomorrow, RBNZ rate announcement in the early hours of Wednesday morning, German inflation and US GDP on Wednesday, EU inflation and US PCE Thursday, with US SIM PMIs Friday. There is no nonfarms payrolls Friday despite it being the first Friday of the month, we will have to wait until 8th Dec for that. Still, there’s enough to keep us busy in the meantime.

I’ve seen a few banks looking at US rates and it appears the market is not currently pricing enough in the way of rate cuts for them. As you may recall, a few banks were looking at several rate cuts through 2024, these don’t seem to be priced in. ECB officials have been saying they are able to pause rate rises in order to see the effects of previous tightening and are happy to remain neutral for now. Lagarde speaks today, I’ll be surprised if she says anything to contradict this message. A similar message from the UK, although out of Fed, ECB and BoE it is the latter that still seems to have a greater chance of being forced into rate rises.

UK’s House of Lords are looking to reform BoE role after the failures they see in the inflation fight. RBA are also going to be given a thorough overhaul, while the Aussie government popularity has hit its lowest level since its election 18 months ago, while the incoming NZ government have upset many by announcing plans to scrap the smoking ban for young people. Meanwhile, Geert Wilders has said he may soften some of his manifesto points in order to create a decent government.

Good news over the weekend that the pause in fighting in Gaza has held for now and many hostages have been released although there is still a long way to go. Pretty shocking to see how many young children were taken by Hamas but I have to admit to being surprised how many Palestinians the Israelis are holding, some of them for rather petty crimes. To the outsider it looks simple to just say ‘live and get on with each other while expecting each others own rights’ but of course the reality is this seems a nigh on impossible solution.

Russia have reminded us that they are still willing to tackle Ukraine by launching the largest drone attack yet, targeting some areas in Kyiv. As with Gaza, this will be going on for a long time unfortunately unless Ukraine give up large areas of their lands that the Russians have taken. Whether that would even be enough for Putin, or whether he is intent on taking over all of Ukraine remains to be seen.

The COP287 climate summit is due to start this week in UAE. For those not familiar with the event, it is where people fly in on private jets to decide how to tell us ‘normal folk’ we should reduce our use of aeroplane travel and the like. This year it is in UAE, leaked documents show that UAE were using the gathering as an opportunity to strike oil and gas deals. Not exactly the idea of climate talks.

Having been out and about for much of the weekend I missed the Spurs match which is no bad thing, I had warned that Spurs will be nowhere near their early-season levels with many key players out. That’s not a whinge, all clubs go through this from time to time and Spurs haven’t been helped with some reckless suspensions but it doesn’t help when one player literally just back from injury had to be substituted early in the match following a bad tackle on him by an opposition player. Elsewhere, F1 season is over with Verstappen and Red Bull more dominant than ever before. The other teams are so far behind it will take something of a miracle for them to be competitive next year. Or a rule change perhaps, that usually does the job!

And finally, just a mention for Terry ‘El Tel’ Venables who passed away over the weekend following a long illness. Not many people in football achieved what he has and had so many people look up to him. He is probably remembered most for coaching Englands Euro 1996 team but his achievements went well beyond that, not least that he is the only player to have been capped by England at every level from schoolboy to full international level. He is one of those who left a really positive impact on so many people.

- 14.00 ECBs Lagarde speaks

- 15.00 US new home sales

- 00.30 AUS retail sales

- 03.20 RBAs Bullock speaks

BoEs Pill warns it is too early to declare victory on inflation

Good morning

No surprise that we’ve seen very little movement over the past day or so with GBPUSD now 1.2535, EURUSD 1.0905 and USDJPY 149.60. GBP did have a little test higher yesterday morning after a decent set of PMI numbers but 1.2560 capped the upside, a level that I seem to recall talking about back in August/September, but for me 1.2620, another level I talked about back then, is more important.

BoEs Pill has made it clear the fight against inflation is far from over and much too early to declare victory, ECBs Villeroy was a bit more certain, saying ECB will not be raising rates again, assuming there are no nasty surprises although ECB minutes show they are leaving the door open for higher rates for the time being. GBPEUR just around 1.1500 as I type, not far off the highest level seen so far this week.

Japan inflation numbers came out higher than expected but USDJPY is at the same level it was before the release, having traded a range of 149.20-149.70 overnight. Some ongoing talk of Japan eventually having to tighten but unlikely to happen in Q1 2024. Elsewhere in Asia, China have released a statement saying there are no new pathogens in the childrens illnesses I mentioned yesterday.

Gold is struggling to hold anything above $2000, still that $2009 level caps the upside as it did back in late October. We’ll continue to see sellers ahead of there, with stops lurking just above.

US markets will be closing early today which suggests a slow end to the week although we do have US PMIs out later, they always offer some market-moving potential.

A four-day pause in fighting in Gaza has started and hostages are due to be released by both sides this afternoon. The truce will not be easy, both sides have soldiers in forward positions and I would not be surprised if some skirmishes still took place. Imagine if one of the top Hamas leaders popped up, I’d imagine Israel would not hesitate to act. The four-day truce can be extended if more hostages are released. We hope for the best.

Looks like it’ll be a dry weekend but its going to get cold with overnight temperatures turning negative. There is yet another huge pile of leaves in the garden but they’ll have to wait as I’m heading off to the Peak District tomorrow. Must remember to pack some warm clothes! Premier League action returns after the international break, Spurs take on Aston Villa, both teams are just one point apart, as such this is quite a key match for the ‘also-rans’. As usual, I can’t say I’m overly confident given the injury problems and suspensions in the Spurs squad, Spurs are slight favourites though. Abu Dhabi F1 as well this weekend.

Judging by the number of offers in my email inbox, Black Friday sales are better than ever! However I see some Amazon staff have gone on strike, Amazon assure us customers will not be affected and I have to say I’m inclined to believe them. Maybe deliveries will be a day later but given a lot of their stuff arrives next day, it isn’t really too much of a problem.

Have a great weekend. Just one month to go until Christmas eve….

- 09.00 German IFO

- 10.00 ECBs Lagarde speaks

- 13.00 ECBs de Guindos speaks

- 13.30 CAD retail sales

- 14.45 US S&P manufacturing, services PMI

Tool boxes in space

Good morning

The US dollar tried to make back some of its recent losses yesterday, with GBPUSD trading down from almost 1.2550 to 1.2450, EURUSD moved down from 1.0915 to 1.0850. A mildly better initial jobless claims number and then a better than expected Michigan sentiment survey helped push the USD higher, although by the end of the London session it had lost some of its gains and this morning we are back to 1.2520 and 1.0915 respectively. That same USD strength helped USDJPY push higher through the afternoon, hitting a high around 149.75 before briefly slipping back below 149.00. It now sits at 149.20

GBP was not really moved by Hunt’s Autumn statement. The headlines looked reasonable enough but he didn’t really have a lot he could get his teeth into and with possibly just one more budget before the next general election it won’t really be enough to convince the public that they are strong enough to carry us through the next few years. Still, it could be worse, as we found out last September. Mind you whatever savings people may make are likely to be swallowed up in January’s energy price rise.

USDCAD has moved out of its ever-decreasing range but nothing is ever simple of course. It first broke higher, trading up from 1.3700 to 1.3760, before turning completely and now sits down at 1.3665. More perhaps indicative of USD weakness than CAD strength, particularly as BoC Gov Macklem sounded pretty dovish, saying rates are now restrictive enough and even mentioned possible rate cuts even before inflation had returned fully to target.

It is Thanksgiving today, our friends across the pond will be tucking into their turkey later. I saw a warning that US firefighters put out about the risks of deep frying a turkey, they had a whole turkey that they lowered into a bucket of boiling fat. The fat boiled over and the resulting fire was pretty horrendous. But deep-frying a whole turkey! I get the odd bit of fried chicken, but a whole turkey! Don’t they have ovens in America?

On the subject of turkey, the Turkish central bank will be announcing their latest interest rates this morning. They are currently 35%, a raise of a further 2.5% is expected but is unlikely to offer any help to TRY. USDTRY is now pretty much at the highs around 28.83, while EURTRY is 31.38, not too far off its own historic highs.

A fairly full economic calendar today goes slightly against my idea that we can all sit back and relax for the next couple of days, swapping screens full of currency prices and charts with screens full of bargains from Amazon, Nike and other retailers in the black Friday sales. Perhaps once we get the PMIs and ECB minutes out of the way we can take it a bit easier.

In other news, I saw an alarming news report that talked of a possible outbreak of undiagnosed pneumonia in children, with some hospitals overwhelmed with sick children. WHO has asked China for more information. The hope is that the lifting of Covid restrictions has just increased the spread of flu-like illnesses but of course we know what happened around this time four years ago. We now know Covid was flagged to scientists in Dec 2019, but it was actually 20th Jan 2020 when I first mentioned the outbreak of Covid in China, at that time just 138 new cases had been reported and we all know what happened after that. I’m not one for scaremongering but it would be wrong to completely ignore news of another possible respiratory infection.

Closer to home, Geert Wilders has won the Dutch elections and said he wants to lead the country’;s next government. I first mentioned Wilders back in March 2017 when Wilders party won 20 seats, making it the second largest party. They are set to win 37 seats this time, while Rutte’s current ruling party looks like it will finish in third place. Wilders is known for his anti-EU and anti-Islam stance and has promised a referendum on leaving the EU, although I believe it would be unlikely such a vote would lead to a Dutch EU exit. Wilders will struggle to create a coalition, the three other big parties ruled out joining any government led by Wilder, but his win will shake the EU and give other right-wing parties more confidence.

Meanwhile Farage is doing himself no harm in ‘I’m a celebrity’ having been provoked by one of the other contestants but dealing with it very well. As always, there is some debate over how many of the contestants are really celebrities, I reckon I know of just half of them. Franke Dettori and Tony Bellew have now joined. I’m hoping for some fireworks, as I recall the contestants in recent series have all been far too friendly.

Finally, even further from home, looking up in the night sky with a pair of binoculars, you may be able to see something rather unusual. Astronauts on the International Space Station dropped a box of tools which is now orbiting the earth just a few minutes ahead of the ISS. It is surprisingly shiny and as such may even be seen with the naked eye. In the UK we only have a few more days to see it and there is only a very small time frame to see it, something like 2-3 minutes. 6.15pm this evening and just after 7pm Friday.

- 09.00 EU manufacturing, services PMI

- 09.30 UK S&P manufacturing, services PMI

- 11.00 CBRT rate announcement

- 12.30 ECB minutes

- 16.00 ECBs Nagel speaks

- 21.45 NZ retail sales

- 23.30 Japan CPI

- 00.01 UK GfK consumer confidence

- 07.00 German GDP