The reevaluation of the perspective for the upcoming FOMC meeting, prompted by remarks from the NY Fed president prior to the weekend, has persisted today; however, the effect on the dollar remains ambiguous. The greenback shows a mixed performance, as European currencies generally outperform the dollar bloc and the Japanese yen. Overall, a broadly consolidative price action has been observed, with the G10 currencies fluctuating within a range of +/- 0.25% against the US dollar during the late European morning session. Emerging market currencies are displaying a mixed performance, with Asia Pacific currencies generally lagging behind their central European counterparts. The Reserve Bank of India, having been absent prior to the weekend, seems to have stepped in to bolster the rupee following its decline to an unprecedented low at the close of last week. The intervention seems to have occurred in both the onshore and non-deliverable forward market.

Excluding Tokyo, which is observing a holiday today, South Korea, and India, the majority of significant equity markets in the Asia Pacific region experienced a rally today. Last week, the MSCI Asia Pacific Index experienced a decline of 3.9%, marking its most significant weekly drop since April. Europe’s Stoxx 600 has increased approximately 0.4%, although defense stocks have experienced selling pressure due to the improved likelihood of a ceasefire in Ukraine. It experienced a decline of 2.2% last week. US stocks made a notable recovery ahead of the weekend, with the S&P 500 and NASDAQ futures displaying a stronger sentiment today. European benchmark 10-year yields have decreased by nearly two basis points. The financial challenges faced by France and the recent upgrade in Italy have not significantly influenced the overall situation. The yield on the 10-year US Treasury is currently approximately 4.05%. It traded near 4.03%, marking a new low for the month ahead of the weekend. Gold is currently consolidating within the pre-weekend range, remaining confined to a $4040-$4078 range thus far today. January WTI is experiencing a gentle decline after reaching a 4 1/2-week low close to $57.40 at the end of the previous week. Last month’s low was approximately $56.

The Dollar Index fluctuated within Thursday’s range (~100.00-100.35) as the weekend approached. While the close remained within the range, the price action appears favorable as long as it maintains above 99.85. The asset is currently experiencing subdued trading activity, fluctuating just below 100.10 and reaching up to 100.30. Comments from NY Fed President Williams ahead of the weekend have reignited speculation regarding a potential rate cut next month. The probabilities in the futures market increased to nearly 66% prior to the weekend and have risen slightly today to approximately 69%. The highest level observed in a fortnight. The data released today, mainly the Chicago Fed’s national survey for October and the Dallas Fed’s manufacturing survey for November, is unlikely to have a significant impact. Following the closure of European markets for the day, the Federal Reserve is set to announce annual revisions to industrial production. Tomorrow’s data could hold greater significance despite being older (Sept): PPI, retail sales, and house prices. The Conference Board’s November survey, along with the Dallas Fed’s service survey and the Richmond Fed’s survey, will be reported as well.

The euro fluctuated within Thursday’s trading range as the weekend approached. The session low was noted around $1.1490 close to midday in New York ahead of the weekend. Subsequently, it failed to trade above $1.1520 and recorded a neutral settlement. It is exhibiting a stronger trend today. It has maintained a position above $1.15, with options for approximately 775 million euros expiring at that level today, alongside 780 million euros of options at $1.1520 also set to expire. Additionally, it has briefly surpassed $1.1540. The pre-weekend high registered just above $1.1550. The November low, marking the lowest point since August 1, was approximately $1.1470. A breach of this level could trigger a test of $1.14. Currently, the US two-year premium over Germany is at a yearly low of approximately 150 basis points, which may provide support for the euro. This week’s aggregate data holds minimal significance. The week is framed by national data, starting with today’s Germany’s IFO survey and concluding with the inflation figures from Germany, France, and Spain at the week’s end. In Germany, there has been an upward trend in business expectations this year. According to the IFO, improvement was observed in eight out of the first ten months. In November, it decreased to 90.6 from 91.6, marking the highest level since the onset of Russia’s invasion of Ukraine. The current assessment increased for the first time in four months (85.6 vs. 85.3). The overall business climate measure is currently at 88.1, compared to 88.4 in October. Moody’s upgraded Italy’s credit rating at the end of last week; however, at Baa2, it remains one notch below the ratings assigned by S&P and Fitch. In France, the National Assembly has rejected a portion of the 2026 budget over the weekend, increasing uncertainty as we approach next month’s vote. The future of the Prime Minister is uncertain. The inability to reach an agreement on the budget led to the downfall of the last two administrations.

The dollar halted its four-day decline at the end of last week, with the greenback climbing from approximately JPY154.50 to around JPY157.90. Japanese officials provided verbal warnings and indicated the possibility of material intervention ahead of the weekend. Tokyo markets are closed for the holiday today. If intervention occurs unexpectedly and proves effective, it seems an opportunity may have been overlooked today. Softer US yields and renewed speculation of a Fed cut next month prompted a short-covering rally that strengthened the yen against nearly all global currencies as the weekend approached. The current trading range is approximately JPY156.35 to JPY156.95, indicating a phase of consolidation. At the conclusion of last week, the Swiss franc emerged as the weakest among the G10 currencies, suggesting a potential shift where some short-yen funding positions may have transitioned to short franc positions. The recent declines in certain Latam currencies, including the Brazilian real at -1.3%, Colombian peso at -1.1%, Chilean peso at -1.05%, and Mexican peso at -0.55%, could indicate the unwinding of some yen-carry trades. This week’s critical data points are concentrated at the end: Tokyo CPI, employment figures, retail sales, and industrial production metrics. Three significant concerns at present are not primarily associated with the high-frequency data: 1) Increased apprehension from the government regarding the yen’s depreciation, coupled with a reduction in expectations for a rate hike next month (23% compared to 47% at the beginning of the month); 2) the government’s newly proposed JPY17.7 trillion ($112 billion), significantly exceeding last year’s supplementary budget of JPY13.9 trillion, with expectations of new supply leading to rising bond yields; 3) escalating tensions with China following the prime minister’s recent remarks concerning Taiwan. In a significant development, Japan’s Defense Minister Koizumi has confirmed plans to reposition additional missiles to the southern island of Yonaguni, located less than 70 miles from Taiwan.