The USD eases, oil prices weaken, equity markets are down, and US yields rise on Fed Chair's comments. The USD steadies at 2-year highs, having rallied by 1.4% this week on the "Trump Trade" and received an extra boost yesterday on Fed Chair Powell's hawkish comments. Equity markets came under pressure, while US yields strengthened after Fed Chair Powell's comments on Thursday that the Fed was not in a rush to cut interest rates. Fed Chair Powell's remarks that the Fed is not in a hurry to cut interest rates given the strength in the domestic economy saw markets par back their bets of a December rate cut from 80% to 60%. Elsewhere, oil prices are headed for a weekly drop, under pressure from a stronger USD and the prospect that global markets will flip to an oversupply in 2025. Bitcoin strengthened 1.3% to $89k, while gold and silver prices are flat. Today, investors will be focused on US Retail Sales and comments from Fed's Williams & Collins and ECB Lane to help provide intraday direction to currency markets.
In other news. Companies rush to US bond market as Trump rally cuts borrowing costs. Russian sales of Chinese cars surge after Western sanctions hit. Trump picks Robert Kennedy Jr to run the US health department. European gas prices surge on potential disruption from Russia. China's Industrial output growth slowed in October, missing forecasts. Germany's Scholz faces calls in his party to abandon his re-election bid. The UK economy contracts in September in a blow to Finance Minister Reeve's growth push. Canada postal workers go on strike ahead of the busy holiday season.
In currency markets. The USD heads for its strongest week since September, hitting two-year highs after getting an extra boost from Fed Chair Powell's hawkish comments. CNY is on track for its 7th weekly drop, and Japan warns against excessive yen weakness. CNY is flat, while Asian currencies firmed by 0.3% on average against the USD. Trading currencies staged a rebound, with MXN flat, AUD, ZAR & CHF up 0.25%, NZD & NOK gaining 0.4%, and JPY strengthened 0.65% against the USD.
In commodity markets. Oil prices weakened by 1%. Natural Gas prices tumbled by 2.5%. Gold & Silver prices are flat. Copper prices rallied by 1.4%. Wheat & Soybean prices gained by 0.6%.
CAD tested 1.4071, a fresh four-year low in early trading following Fed Chair Powell's hawkish comments and the prospect of oversupply in the oil markets in 2025. We remain bearish for the loonie in Q4/24 with expectations of widening divergence between the Fed & BoC, increasing US/Canada trade concerns, and the prospect of further weakness in commodity prices. Intraday, US data, and Fed comments will provide direction for the loonie.
EURCAD extends gains, bouncing off four-month lows weaker oil prices put pressure on the loonie.
EUR edges off weekly lows as markets consolidate after a volatile week for the single currency. The USD steadies, allowing the euro to edge towards 1.0600 as investors focus on the USD Retail Sales report. Markets are concerned that potential trade policies from the new Trump administration could include trade tariffs on Europe, which could see US inflation levels rise. In the case of higher US inflation levels, markets would expect the Fed to pause or possibly increase domestic rates, while the slowing EU economy is expected to see as much as 1% of easing by the ECB in 2025. We are bearish on the euro and see the potential of a test of 1.0300 by January.
GBPEUR weakened in early trading following disappointing UK growth data in September.
GBP stalls below 1.2700 after UK data. The pound edged higher on the back of a softening USD, but disappointing growth data capped the pound's advances. The UK GDP came in at 0.1%, below expectations of 0.2% and falling 0.1% in August. UK Manufacturing Product y/y missed expectations, falling -0.7%, and the Industrial Production also fell -1.8% vs -1.2% forecasted. We expect the pound to remain under pressure against the USD following increasingly dovish comments from the BoE, while the USD is expected to extend its "Trump Trade" rally. Intraday, US Retail Sales, and Fed comments will help drive direction to currency markets.
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