The US dollar is exhibiting a somewhat weaker stance against the G10 currencies today. The yen stands out as it is currently trading at a seven-day low against the greenback. The Scandinavian currencies and the Australian dollar are performing the strongest. The Reserve Bank of Australia maintained a firm stance. Governor Bullock’s remarks prompted the market to anticipate the initial rate increase, which is now almost entirely priced in within the futures market for the upcoming May. Today, France’s parliament is set to conduct a significant vote regarding social security financing, and a loss in this vote could potentially exert downward pressure on the euro. Meanwhile, discussions abound regarding a hawkish cut from the Federal Reserve tomorrow. Today, a majority of emerging market currencies are showing strength against the US dollar. The Chinese yuan is part of this scenario, despite the PBOC establishing a higher reference rate for the dollar today for the third consecutive session.

Outside of Japan, the majority of significant exchanges in the Asia Pacific region experienced declines today, with the Hang Seng and the index of mainland stocks trading there leading the way with losses exceeding 1%. Europe’s Stoxx 600 is exhibiting a marginally bearish trend for the third consecutive session. US index futures are largely stable. Excluding Australia and New Zealand, where 10-year yields increased by approximately five basis points today, other benchmark yields are experiencing a decline. Yields in Japan and the majority of Europe have decreased by 1-2 basis points. The 10-year US Treasury yield remains relatively stable around 4.16%. Gold remains positioned around $4200, exhibiting a lack of significant movement despite some fluctuations in price. January WTI continued its retreat from above $60, momentarily falling below $58.60 before attracting buyers that pushed it back above $59.

The Dollar Index established a near-term level around 98.75 and is currently consolidating beneath 99.20. The 99.40-99.45 range presents significant resistance levels. The 200-day moving average is located here, along with the (38.2%) retracement of the decline from the November 21 peak (~100.40), marking the last occasion it closed above 100.00. The US is set to release the JOLTS data for September and October today. The potential for significant market impact appears limited, particularly with the upcoming FOMC decision. Current pricing in the Fed funds futures suggests a high likelihood of a rate cut. The consensus on the decision is unlikely to be unanimous. At the beginning of the cycle, there were concerns regarding a lack of consensus, and now we are hearing grievances about a divided Federal Reserve. Rational individuals might have varying opinions on multiple factors, such as the inflationary effects of tariffs, the neutral interest rate, and the appropriate amount of bank reserves.

The euro has approached the upper limit of a two-month range but has encountered a standstill, even as Germany’s economic performance gains momentum with robust factory orders and industrial output figures for October. Additionally, ECB President Lagarde has acknowledged that she has no issues with the market anticipating a rate hike. The swaps market indicates a modest probability of an interest rate increase, estimated at approximately 12%, by the conclusion of the following year. Over the past four sessions, the euro has remained within a range of approximately $1.1620 to $1.1680. The current trading range is confined between $1.1635 and $1.1655 as of today. The market is closely observing the French parliament’s vote regarding social security financing, while the French premium over Germany has experienced an increase in recent days. The bill and the budget must be approved prior to the year’s conclusion.

Last Thursday, the dollar fluctuated between approximately CNH7.0560 and CNH7.0720 and continues to operate within that range. Reports indicate that certain Chinese academics are reflecting the sentiments of foreign critics who urge Beijing to permit a more significant appreciation of the yuan. Since April, officials have permitted the yuan to appreciate by approximately 4%, marking the most significant increase in the last three years. Recently, the PBOC seems to have aimed at stabilizing the exchange rate. The PBOC adjusted the dollar’s reference rate slightly upward for the third consecutive session (CNY7.0773 compared to CNY7.0764 yesterday). Tomorrow, China will release its November Consumer Price Index and Producer Price Index data. Deflation and disinflation seem to be diminishing.

The increase in US interest rates appears to provide a more compelling rationale for the dollar’s appreciation against the yen than the significant earthquake that occurred. In instances of natural disasters, it is common for Japanese insurance companies to liquidate foreign assets in order to fulfill local claims obligations. The 10-year US Treasury yield was approximately 3.96% at the close of November and surged to nearly 4.19% yesterday, marking its peak since late September. The two-year yield increased from approximately 3.45% at the close of November to just over 3.60% yesterday. The dollar concluded last month at approximately JPY156.20 and subsequently declined to about JPY154.35 ahead of the weekend. It approached nearly JPY156.00 yesterday, aligning closely with the (50%) retracement of its drop from the November 20 peak (~JPY157.90). The upcoming retracement level at 61.8% is approximately JPY156.55, which has been approached today at around JPY156.45. A move beyond that point sets the initial target at JPY157.

The Reserve Bank of Australia, as anticipated, maintained its overnight cash target rate at 3.60%. While the accompanying statement maintained a neutral stance, Governor Bullock’s remarks leaned towards a more hawkish perspective. She indicated that further cuts might not be necessary, and the current consideration revolves around whether to implement an extended pause or to get ready for a rate hike. The futures market, previously indicating just over a 70% likelihood of a rate hike by mid-2026, now fully incorporates the first hike by next June, with over a 90% probability of it occurring in May. In light of the recent hawkish stance, the Australian dollar experienced a pause last Friday and yesterday around $0.6650, marking a significant 4.25-cent increase since November 21. The Australian dollar appears to be gaining momentum at this point. The price breached the previous session’s low for the first time in nine sessions and is currently positioned at $0.6640. A breach of the $0.6650 level indicates a potential move back towards the year’s peak, established on September 17, slightly exceeding $0.6700. The jobs report for Australia in November is set to be published early on Thursday. The unemployment rate is projected to rise to 4.4% from 4.3% in October. The figure remained at 4.3% since June, subsequently increasing to 4.5% in September, marking the cyclical high.