The greenback index (DXY00) on Tuesday rose by +0.37% and posted a 3-month excessive. Tuesday’s stoop in fairness markets has boosted liquidity demand for the greenback. The greenback additionally had carry-over help from Fed Chair Powell’s warning final week that one other price minimize in December is just not a foregone conclusion.
Bearish elements for the greenback embody decrease T-note yields on Tuesday and the weaker-than-expected report on US Oct Wards complete automobile gross sales.
The greenback continues to be underneath strain from the continued US authorities shutdown. The longer the shutdown is maintained, the extra probably the US economic system will undergo and the extra probably the Fed should minimize rates of interest.
The markets are discounting a 69% likelihood that the FOMC will minimize the fed funds goal vary by 25 bp on the subsequent FOMC assembly on December 9-10.
As a bearish issue for the greenback, the Oct Wards complete automobile gross sales slowed to fifteen.32 million, weaker than expectations of 15.50 million and the fewest in 14 months.
EUR/USD (^EURUSD) on Tuesday fell by -0.36% and posted a 3-month low. The primary bearish issue for the euro right this moment is the greenback’s energy. Additionally, feedback from ECB Governing Council member Stournaras weighed on the euro Tuesday when he mentioned the Eurozone’s development prospects “are topic to a number of draw back dangers.”
Central financial institution divergence is supportive of the euro, with the ECB seen as largely completed with its rate-cut cycle, whereas the Fed is anticipated to chop charges a number of extra occasions by the top of 2026.
Feedback right this moment from ECB Governing Council member Rehn have been impartial for the euro when he mentioned, “Development within the Eurozone stays sluggish however resilient, whereas inflation dangers are two-sided-upward from items and meals costs, and doable provide disruptions; downward from cheaper power, a stronger euro and easing wage pressures.” He added that, “On this setting, it is essential to take care of full flexibility in decision-making and never decide to any particular rate of interest path.”
ECB Governing Council member Stournaras mentioned the Eurozone’s development prospects “are topic to a number of draw back dangers,” together with uncertainty over commerce coverage and extended geopolitical tensions internationally, in addition to “political uncertainty in France.”
Swaps are pricing in a 6% likelihood of a -25 bp price minimize by the ECB on the December 18 coverage assembly.
