Dollar steady as global rate decisions impact, EMs volatile
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The US Dollar stabilized on Thursday, supported by a surprise rate cut in South Korea and cautious trading due to the Thanksgiving holiday. However, broader market dynamics showcased notable movements in currencies like the Japanese Yen, Euro, and emerging market pairs such as the Mexican Peso and Brazilian Real.
Key Developments
Yen’s Resilience Despite Intraday Weakness
The Japanese Yen (JPY) slipped slightly during Asian trading, with USD/JPY climbing to 151.59. However, the Yen remains on track for a 2.4% weekly gain, its strongest performance in three months. This comes amid rising bets on a Bank of Japan (BoJ) rate hike in December, bolstered by stronger-than-expected Japanese inflation data.
Rabobank senior currency strategist Jane Foley noted that expectations of a Federal Reserve rate cut in December have added to downside pressure on USD/JPY. The pair remains under watch, with markets pricing in a 55% chance of a BoJ policy shift next month.
South Korea Cuts Rates, Weakening the Won
South Korea’s Won (KRW) slipped after the central bank unexpectedly cut rates for the second consecutive meeting, a decision predicted by only 4 of 38 economists polled by Reuters. Dealers reported that authorities stepped in to steady the currency, preventing more significant declines.
Euro Holds Gains on ECB Hawkish Remarks
The Euro (EUR) clung to its recent rally, trading at $1.0553 after a sharp 0.25% rise on Wednesday. The move followed hawkish comments from European Central Bank (ECB) board member Isabel Schnabel, who stressed that rate cuts should be gradual and aim for neutrality rather than accommodation.
UOB strategist Quek Ser Leang suggested that the Euro could extend its rebound toward $1.0650, supported by fading downward momentum and the development of bullish sentiment. Markets are now eyeing German inflation data and political developments in France for further cues.
Emerging Markets See Diverging Trends
Emerging markets exhibited heightened activity:
Mexican Peso (MXN): The Peso gained nearly 1% after Donald Trump announced an agreement with Mexico to curb migration, which had been linked to his tariff threats. Russian Rouble (RUB): The Rouble strengthened past 110 per dollar as the Russian central bank paused forex purchases to support the currency.
Brazilian Real (BRL): The Real tumbled to its lowest-ever close, with 10-year bond yields spiking 38.5 basis points, amid concerns over the fiscal impact of tax cuts. Commodity Currencies Reflect Mixed Sentiment New Zealand Dollar (NZD): Firmed after the Reserve Bank of New Zealand’s 50-basis-point rate cut on Wednesday, which was less aggressive than some had anticipated.
Australian Dollar (AUD): Drifted 0.2% lower to $0.6480 as markets awaited remarks from Reserve Bank of Australia Governor Michele Bullock. Corpay strategist Peter Dragicevich suggested the RBA would likely reiterate a cautious stance on inflation sensitivity.
Dollar Index and US Economic Data
The Dollar Index (DXY) rose marginally to 106.24, underpinned by Wednesday's data showing US personal consumption expenditures (PCE) rising 0.2% month-on-month in line with expectations.
Yields and Market Sentiment
US Treasury yields declined overnight, reflecting subdued inflationary pressures and supporting the view that the Fed’s rate cuts may proceed gradually.
Technical Outlook
USD/JPY Resistance: 152.50 remains a critical hurdle, with stronger resistance near 153.00.
Support: The 151.00 level is key, with a break below potentially opening the path to 150.25.
EUR/USD
Resistance: $1.0650 marks the next upside target.
Support: Immediate support lies at $1.0485, with stronger backing near $1.0420.
AUD/USD
Resistance: The 0.6500 level remains pivotal for the Aussie’s recovery.
Support: A break below 0.6450 could expose the yearly low at 0.6385.
Conclusion
The US Dollar’s steadiness reflects the interplay of global monetary policy shifts and cautious sentiment during a light US trading day. Emerging markets are seeing heightened volatility, while the Yen, Euro, and commodity-linked currencies await further cues from upcoming economic releases and geopolitical developments. Market participants will closely monitor US PCE and GDP data for directional clarity.
Key Developments
Yen’s Resilience Despite Intraday Weakness
The Japanese Yen (JPY) slipped slightly during Asian trading, with USD/JPY climbing to 151.59. However, the Yen remains on track for a 2.4% weekly gain, its strongest performance in three months. This comes amid rising bets on a Bank of Japan (BoJ) rate hike in December, bolstered by stronger-than-expected Japanese inflation data.
Rabobank senior currency strategist Jane Foley noted that expectations of a Federal Reserve rate cut in December have added to downside pressure on USD/JPY. The pair remains under watch, with markets pricing in a 55% chance of a BoJ policy shift next month.
South Korea Cuts Rates, Weakening the Won
South Korea’s Won (KRW) slipped after the central bank unexpectedly cut rates for the second consecutive meeting, a decision predicted by only 4 of 38 economists polled by Reuters. Dealers reported that authorities stepped in to steady the currency, preventing more significant declines.
Euro Holds Gains on ECB Hawkish Remarks
The Euro (EUR) clung to its recent rally, trading at $1.0553 after a sharp 0.25% rise on Wednesday. The move followed hawkish comments from European Central Bank (ECB) board member Isabel Schnabel, who stressed that rate cuts should be gradual and aim for neutrality rather than accommodation.
UOB strategist Quek Ser Leang suggested that the Euro could extend its rebound toward $1.0650, supported by fading downward momentum and the development of bullish sentiment. Markets are now eyeing German inflation data and political developments in France for further cues.
Emerging Markets See Diverging Trends
Emerging markets exhibited heightened activity:
Mexican Peso (MXN): The Peso gained nearly 1% after Donald Trump announced an agreement with Mexico to curb migration, which had been linked to his tariff threats. Russian Rouble (RUB): The Rouble strengthened past 110 per dollar as the Russian central bank paused forex purchases to support the currency.
Brazilian Real (BRL): The Real tumbled to its lowest-ever close, with 10-year bond yields spiking 38.5 basis points, amid concerns over the fiscal impact of tax cuts. Commodity Currencies Reflect Mixed Sentiment New Zealand Dollar (NZD): Firmed after the Reserve Bank of New Zealand’s 50-basis-point rate cut on Wednesday, which was less aggressive than some had anticipated.
Australian Dollar (AUD): Drifted 0.2% lower to $0.6480 as markets awaited remarks from Reserve Bank of Australia Governor Michele Bullock. Corpay strategist Peter Dragicevich suggested the RBA would likely reiterate a cautious stance on inflation sensitivity.
Dollar Index and US Economic Data
The Dollar Index (DXY) rose marginally to 106.24, underpinned by Wednesday's data showing US personal consumption expenditures (PCE) rising 0.2% month-on-month in line with expectations.
Yields and Market Sentiment
US Treasury yields declined overnight, reflecting subdued inflationary pressures and supporting the view that the Fed’s rate cuts may proceed gradually.
Technical Outlook
USD/JPY Resistance: 152.50 remains a critical hurdle, with stronger resistance near 153.00.
Support: The 151.00 level is key, with a break below potentially opening the path to 150.25.
EUR/USD
Resistance: $1.0650 marks the next upside target.
Support: Immediate support lies at $1.0485, with stronger backing near $1.0420.
AUD/USD
Resistance: The 0.6500 level remains pivotal for the Aussie’s recovery.
Support: A break below 0.6450 could expose the yearly low at 0.6385.
Conclusion
The US Dollar’s steadiness reflects the interplay of global monetary policy shifts and cautious sentiment during a light US trading day. Emerging markets are seeing heightened volatility, while the Yen, Euro, and commodity-linked currencies await further cues from upcoming economic releases and geopolitical developments. Market participants will closely monitor US PCE and GDP data for directional clarity.