The US dollar is exhibiting strength against almost all G10 currencies. The yen stands out as the top performer, remaining nearly unchanged even with the anticipated shift towards a BOJ hike next month. Anticipations have stabilized for a Federal Reserve reduction next month at approximately 80%. The November inflation reports from the largest eurozone members did not provide the market with the expected impetus, putting the euro’s four-day rally at risk. Sterling’s positive response to the government’s budget encountered resistance yesterday around $1.3270 after beginning the week under $1.3100. Emerging market currencies display a varied performance. The Chinese yuan shows slight strength, despite the PBOC raising the dollar’s fix for the first time in six sessions.

Global equities are predominantly on the rise. Markets in the Asia Pacific region displayed a mixed performance, as losses in Samsung and SK Hynix contributed to a 1.5% decline in South Korea’s Kospi, while small cap stocks showed stronger results. The Hang Seng and mainland stocks listed there experienced a decline. Europe’s Stoxx 600 remains relatively stable following gains in the initial four sessions of this week. US index futures are showing strength. Benchmark 10-year yields remain relatively stable, exhibiting a mostly narrow range of movement across Europe. The US 10-year yield, which concluded below 4% on Wednesday, is currently just slightly above that level. Gold remains stable; however, the previous momentum that propelled it to a new two-week high (~$4193) has diminished. Current support is identified at approximately $4150. Oil shows strength as we approach the weekend OPEC+ meeting. January WTI has reached a new weekly high, slightly exceeding $59.

The Dollar Index experienced a decline for the fourth consecutive session yesterday, settling at 99.40. Today, it appears poised to break that streak, currently consolidating within the range of approximately 99.50 to 99.80. The market’s outlook has shifted significantly towards a Federal Reserve rate cut next month. However, with over an 80% probability already factored in, it seems the momentum may have reached its limit, awaiting further data, especially with today’s schedule being devoid of any key events. The Federal Reserve’s quiet period leading up to the FOMC meeting commences this weekend, creating a challenging environment for officials to counter prevailing expectations. The market is likely to react to articles from journalists who closely monitor the Federal Reserve, as there are concerns about a recurrence of previous instances where it seemed that stories were strategically placed to influence expectations ahead of a FOMC meeting.

The euro achieved an eight-day peak yesterday, just below $1.1615. The peak for the month approached $1.1655. The euro has experienced support from the changing expectations surrounding the Fed, alongside the disparity between US and German two-year yields. The German yield shows a slight increase compared to the beginning of the month, whereas the US two-year yield has decreased. The net effect is that the two-year rate differential between the US and Germany has fallen to new yearly lows, now below 145 basis points. It was above 160 basis points as recently as November. This does not imply a direct relationship between the differential level and the euro. The alteration in the spread appears to be the crucial factor. The euro has returned to a more favorable position today. Large options are positioned at $1.16, set to expire today and on Monday. Another set exists at $1.1570 for 780 million euros, which also expires today. The low in Europe today stands at approximately $1.1555. The 20-day moving average is positioned around $1.1560, with the $1.1550 level serving as the midpoint of the rebound from last Friday’s low of approximately $1.1490. Earlier today, the four largest eurozone members released their November CPI figures. Reports from German states have been released, and the national figure is expected to be announced soon. A 0.5% decline in the EU harmonized measure will still result in the year-over-year rate increasing to 2.4% from 2.3%. The 0.2% decrease in France resulted in the year-over-year rate remaining steady at 0.8%. In November, Spain’s CPI experienced a decline of 0.2%, leading to a year-over-year rate reduction to 1.1% from the previous 1.3%. Italy’s Consumer Price Index remained unchanged, with the annual rate decreasing to 3.1% from the previous 3.2%. The eurozone aggregate estimate is set to be released next Tuesday. Historically, it tends to ease in November; however, a decline of more than 0.3% is necessary for the year-over-year rate to drop from October’s 2.1% year-over-year pace. Germany, France, and Spain have also disclosed their consumption figures. In Germany, retail sales experienced an unexpected decline of 0.3% in October, following a 0.3% increase in September. In October, French consumer spending experienced an increase of 0.4%, marking the first instance since June that the year-over-year rate has surpassed zero, standing at 0.4%. Spain’s retail sales showed no change in volume terms. The eurozone economy experienced a growth of 0.2% in the third quarter and is projected to maintain this growth in the fourth quarter.

The Australian currency is entering today with a five-day rally, yet it is experiencing some profit-taking pressure. During the past five sessions, the Australian dollar experienced a rebound from a three-month low near $0.6420, reaching a peak yesterday around $0.6540, and achieved a slightly higher value today before retreating to approximately $0.6520. A downward trendline originating from the year’s peak on September 17 (approximately $0.6705) through the October peak (around $0.6620) nearly intersects with the November 13 peak (about $0.6580) and is positioned today close to $0.6550. The futures market has almost entirely abandoned expectations for another cut by the central bank and is starting to consider a potential hike late next year, while confidence in a Fed cut has increased among market participants. Australia recorded a robust 0.7% increase in private sector credit growth for October, surpassing the figures from August and September. The central bank convenes on December 9, and market sentiment suggests a strong expectation for it to maintain its current stance.