The US dollar is exhibiting a more pronounced downward trend today. On the initial day of the new month, both equities and bonds experienced selling activity. The dollar bloc and the sterling are underperforming today, while the yen has experienced an upward movement due to increased speculation regarding a potential rate hike by the Bank of Japan later this month. The yen’s recovery does not seem to be prompting a reversal of carry trades; rather, it appears that the yen’s funding role is being replaced by the Swiss franc and/or US dollar. Most emerging market currencies are showing strength, with the exception of a few Asian currencies such as Taiwan, South Korea, India, and the Russian ruble.

Today, Japanese equity indices experienced a decline of over 1% due to rising rates and a stronger yen. Taiwan’s Taiex experienced a decline of 1%. In light of the underwhelming PMI data, China’s mainland markets and Hong Kong-listed shares experienced a rally, with the CSI 300 increasing by just over 1%. Europe’s Stoxx 600, which experienced gains in every session last week, is currently facing a loss of approximately 0.35, reversing the progress made over the last two sessions. The S&P and Nasdaq futures are down by 0.55% to 0.65%. Bond markets remain unperturbed by the declines observed in the equity markets. European 10-year benchmark yields have increased by 3-4 basis points, whereas the 10-year US Treasury yield, which fell below 4% last week, has risen by three basis points to exceed 4.04%. Gold and silver are continuing to build on the gains achieved last week. The yellow metal surpassed November’s peak (November 13, ~$4245) but has since pulled back after nearing $4262.50. January WTI, which traded to almost $57 in the middle of last week, has approached a six-day high near $60 following OPEC+ confirmation that it will pause its increase in output in Q1 26.

The Dollar Index experienced a decline each day last week for the first time since April and is currently exhibiting a more bearish trend today. The recent movement has breached last week’s lows (~99.35), with the subsequent support anticipated near the November low, just under 99.00. The 38.2% retracement of the gains since the low of the year established on September 17, approximately 96.20, is situated close to 98.80. Today, the US will release the final manufacturing PMI along with the ISM manufacturing survey. The PMI has consistently outperformed the ISM. The PMI has consistently remained above 50 throughout the year, with the exception of a decline in July. The initial estimate decreased to 51.9 in November, down from 52.5 in October. In contrast, the ISM has remained below 50 since November, with the exception of January and February of this year. It was recorded at 48.7 in October (compared to 49.1 in September) and could have seen a slight recovery in November. The Federal Reserve has commenced its quiet period in anticipation of the FOMC meeting scheduled for December 10. The Fed funds futures market indicates a nearly 80% probability of a rate cut next month as we enter this week.

The euro appreciated against the dollar in every session last week, contrasting with the previous week when it declined in each session. The rally from last week has continued, reaching nearly $1.1630 thus far today. To enhance the attractiveness of the upside, it needs to surpass the high from last month, approximately $1.1655. The two-year interest rate differential between the US and Germany is hovering near the year’s low, just under 145 basis points. Some euro purchasing activity may be linked to the substantial options at $1.16 that are set to expire today and Thursday, totaling a combined 3.22 billion euros. The major EMU members disclosed their November CPI ahead of the weekend, while the aggregate estimate is set to be released tomorrow. Meanwhile, the eurozone has observed the final manufacturing PMI. It is important to note that it achieved a level of 50 in October, marking the first occurrence since the onset of Russia’s invasion of Ukraine. In November, it retraced to 46.6 from an initial value of 49.7. Germany’s figure is at 482 (48.4 preliminary estimate), marking the lowest level since February. The French reading remained steady at 47.8, consistent with the preliminary estimate, marking a low not seen since February. Italy’s figure has risen to 50.6 from 49.9 in October, marking the highest level since March 2023. Meanwhile, Spain’s reading, which has remained above 50 since May, stands at 51.5, down from 52.1 in October. Looking ahead to tomorrow’s CPI, the median expectation survey indicates a 0.3% decrease, which, considering the base effect, will maintain the headline rate at 2.1% on a year-over-year basis.

The Australian dollar showed resilience in North America as the weekend approached, successfully extending its rally for the sixth consecutive session. The 1.4% increase observed last week marked the most significant weekly rise since April. It increased past $0.6550 for the first time in several weeks. It experienced a pullback to approximately $0.6530 today but is approaching the pre-weekend high. The 50% retracement of the Australian dollar’s losses from the year’s high on September 17 (approximately $0.6705) is close to $0.6565, while the 61.8% retracement is nearly $0.6600. The peak observed in November was approximately $0.6580. Australia stands out among the G10 nations as it has yet to disclose its Q3 GDP figures, with the announcement expected on Wednesday. The median forecast in the monthly survey indicates an anticipated expansion of 0.5%, following a growth of 0.3% in Q1 and 0.6% in Q2. The median forecast in the weekly survey stands at 0.7%. The manufacturing PMI for November was confirmed at 51.6 earlier today, an increase from 49.7 in October. Additionally, November house prices saw a rise of 1.0%, resulting in a year-over-year gain of approximately 6.6%. The Melbourne Institute’s November inflation expectation survey increased to 3.2%. The likelihood is exceedingly high that the central bank will maintain its current stance during its upcoming meeting later this month.