The results of the FOMC meeting are the primary point of interest today. Given that the market is pricing in at least two cuts next year, in contrast to the median projection from September which suggested that only one cut would be suitable, it is challenging to avoid expecting a hawkish cut. The dollar has strengthened following the rate cuts in September and October. The Bank of Canada is convening today. While it is certain that it will maintain its position, the critical question is to what extent it will counter the growing expectations for a rate increase in the second half of 2026. The US dollar exhibits a somewhat softer tone, primarily remaining within the ranges observed yesterday. The Canadian dollar is underperforming and is almost unchanged. Most emerging market currencies are showing strength against the greenback. The PBOC adjusted the dollar’s fixing downwards for the first time in four sessions today. The November CPI increased to 0.7% year-over-year, aligning with the peak observed since February 2023. Producer prices experienced an unexpected and slight deepening of deflation.

Today, equities in the Asia Pacific region displayed a mixed performance, while the decline in Europe’s Stoxx 600 has continued into its fourth consecutive session. US index futures are showing a weaker trend. Meanwhile, the decline in bond prices is intensifying. Yields on 10-year bonds in Australia and New Zealand increased by 4 to 5 basis points. Interestingly, Japanese 10-year yields stood out as rates decreased. European benchmark 10-year yields have increased by 2-5 basis points, with several countries experiencing yields at their highest levels in six months. The 10-year Treasury yield has surpassed 4.20% for the first time in three months. Gold remains positioned around the $4200 mark in lackluster trading conditions. January WTI, having tested $60 earlier this week, is currently positioned around $58, marking the lower boundary of its recent range.

The market exhibits a more dovish stance compared to the Federal Reserve. In September, the median projection indicated one rate cut in 2026. The current pricing of Fed funds futures indicates expectations for two rate cuts, with a minor probability of a third cut occurring. Discussion surrounding a hawkish cut today is grounded in minimal alterations to the median dot. The market could experience shifts due to the leadership transition, as Powell’s tenure as Chair concludes in May 2026. Hassett, currently serving as the Director of the National Economic Council, is regarded as Powell’s most probable successor and is perceived to have a more dovish stance than Powell. In anticipation of the rate cuts in September and October, the dollar experienced a downward trend, followed by a shift post-announcement: Sell the rumor, buy the fact. The Dollar Index reached a peak of approximately 100.40 on November 21 and subsequently declined to around 98.75 last week. It achieved 99.30 yesterday, marking a five-day peak. The market is currently operating within a tight range of 99.00 to 99.25, characterized by subdued trading activity. A breakthrough above 99.40-50 may indicate a potential approach towards the high observed last month.

The euro has struggled to gain traction, even as the US two-year premium over Germany has contracted to its lowest point since last September, hovering around 142 basis points. It is important to remember that it was above 160 basis points in late October and early November. In September 2024, it reached a low of approximately 136 basis points. The market appears to be at ease with the conclusion of the ECB’s monetary cycle. A slight probability of a hike at the conclusion of Q3 26 has been factored into the pricing. ECB President Lagarde has expressed support for this perspective, and further insights are expected at the upcoming press conference after the ECB meeting and the revised staff forecast. The French parliament has approved the social security financing bill, increasing the likelihood of passing the 2026 budget, with debates set to commence on Monday. However, it is noteworthy that the French 10-year premium over Germany has widened today. In a rising interest rate environment, it is common for the peripheral premiums over Germany to expand. A euro move above $1.1695, the (50%) retracement of the losses observed since the year’s high recorded on September 17 (the first Fed cut this year), is necessary to re-initiate the upward momentum. On the downside, support is identified in the $1.1600-10 range. Options totaling 3.44 billion euros are set at $1.1610, with expiration scheduled for tomorrow. Lastly, Italy has reported a contraction of 1.0% in industrial output for the month of October. Following a robust 2.7% increase in September, the decline is more pronounced than anticipated. The overall eurozone estimate is set to be released on Monday. Germany reported a 1.8% jump (1.1% in September), while French industrial production rose by 0.2% (0.7% in September), and Spain experienced a 0.7% increase (0.3% in September).

Last Thursday’s dollar range of approximately CNH7.0560 to CNH7.0720 remains a significant focus in current market activity. Based on the PBOC’s daily fix, it appears that Beijing is satisfied with the current consolidation following the recent market trend that drove the dollar to its lowest point of the year last week. The PBOC adjusted the dollar’s reference rate downward today. CNY7.0753 marks a notable shift for the first time in four sessions. Earlier today, China released its Consumer Price Index and Producer Price Index for November. Consumer goods and food persist in applying downward pressure; however, the headline rate increased by 0.7% year-over-year, aligning with the peak observed since February 2023. In October, it reached 0.2%, marking the highest level since January. Core consumer prices increased by 1.2% on a year-over-year basis, consistent with the figure reported in October. Food prices increased by 0.2% (2.9% in October), while non-food prices saw a rise of 0.8% (0.9% in October). Prices for goods increased by 0.6%, while prices for services saw a rise of 0.7%. Producer prices fell short of expectations. For the first time in four months, deflationary forces have gained strength. China’s PPI is recorded at -2.2%, a slight decline from -2.1% in October. The IMF has urged Beijing to enhance domestic demand, decrease investment, and lessen reliance on exports with increased urgency.

The dollar reached its latest high against the yen on November 20, approaching JPY157.90. It subsequently retraced and reached JPY154.35 last week. With yesterday’s gain, the greenback reached the (61.8%) retracement of those losses. The price is currently consolidating within a tight range, fluctuating between approximately JPY156.55 and JPY156.95 as observed today. The upcoming technical obstacle is identified in the JPY157.00-20 range at first, but it appears poised to test the peak from the previous month. Japan’s November producer prices came in as anticipated. The increase was 0.3% for the month, translating to a year-over-year growth rate of 2.7%. The swaps market exhibits a strong confidence level of approximately 90% regarding a potential rate hike by the Bank of Japan in the upcoming week. The ongoing tensions with China remain high. The prospect of a near-term off-ramp appears challenging to discern. If an adversary were to gain control of Taiwan, Japan would indeed face increased vulnerability. Japan is increasing its military presence in the Ryukyu Island chain. In recent weeks, China has engaged in several provocative military actions. Beijing leverages historical grievances to bolster nationalism, particularly regarding Japanese actions during the 1930s and 1940s. Tokyo maintains that Prime Minister Takaichi’s recent comments do not indicate a shift in its overall position or its approach to Taiwan. Earlier this year, US officials sought clarity from countries regarding their stance on Taiwan, and when Takaichi responded, reports indicated that the US expressed criticism. Earlier today, a spokesperson from the US State Department stated that China’s actions in the region do not contribute to stability and reiterated the strength of the US-Japanese alliance.

The markets exhibit a strong belief that the Bank of Canada will maintain its current stance today, just as they are equally confident that the Federal Reserve will implement a rate cut. The central’s response to expectations of a hike is crucial, with the swaps market indicating a roughly 2/3 probability in September 2026 and fully accounting for it in October. The greenback reached CAD1.38, marking its lowest point since late September on Monday. The recovery has reached approximately CAD1.3860, which has been maintained thus far today. The initial rise could reach CAD1.3880-CAD1.3900. Increased resistance could be observed around the CAD1.3965-75 range.

Despite the RBA’s hawkish stance yesterday and the rise in Australian rates, the Australian dollar struggled to maintain its position above the $0.6650 level that was breached on an intraday basis. It continues to approach it today. The two-and-a-half-week rally of 2.25 cents has extended the momentum indicators. Options totaling nearly A$770 million at a price of $0.6650 are set to expire this Friday. The peak for the year was established on September 17, coinciding with Fed Day, just above $0.6705.