The USD strengthens, oil prices rally, equity markets are mixed, and US yields rise heading into the US inflation report. The USD gains on reports that China may allow a weaker CNY as Trump trade tariff risks loom. The offshore Yuan (CNH) dropped by almost 0.5% to 7.2921 against the USD after Reuters reported that policymakers are considering the yuan to depreciate, abandoning the current stable-currency policy. Equity markets are mixed, with European equities down, while US futures edged up ahead of today's US CPI report. The US CPI report is expected to show that progress on tackling inflation is stalling, with m/m inflation levels up to 0.3% vs 0.2% and y/y up to 2.7% vs 2.6%. Elsewhere, oil prices rallied, edging up on demand hopes from China's 'looser' monetary policy. Bitcoin rallied nearly 2% to $98.2k, while Gold prices held steady and Silver prices weakened. Alongside the US CPI report, investors will also be focused on the CAD BoC interest rate decision, the US Monthly Budget Statement, and the OPEC Monthly Market Report to help provide intraday direction to currency markets.
In other news. Interim Syrian leader vows to rebuild but faces cash crunch. South Korean police try to raid Yoon's office over martial law. Chinese authorities are considering a weaker yuan as Trump trade risks loom. Biden to hit Chinese cleantech imports with more tariffs. California wildfire forces Malibu evacuations. Treasury Secretary Yellen warns Trump's sweeping tariffs could 'derail' inflation progress. EU's new agriculture chief seeks more funds for small farmers. UK public sector workers face fresh pay restraint as Treasury takes tough stance. Iran says the fall of Assad was planned by the US & Israel. Ford says premiers will meet with PM Trudeau to discuss the threat of US tariffs. Tensions are rising between Canada Post and the Union as the strike nears the four-week mark. UK farmers take tractor to Westminster over the inheritance tax protest.
In currency markets. The USD strengthens ahead of the US CPI report and speculation of a looser Chinese currency policy. GBP extends gains against the Euro on expectations the BoE will keep domestic rates on hold in December. CNY weakened by 0.25%, while Asian currencies slipped by 0.15% on average against the USD. Trading currencies remain under pressure, with JPY, MXN, AUD & NZD weakening 0.45%, CHF, ZAR, NOK & SEK down 0.1% against the USD.
In commodity markets. Oil prices strengthen by 1%. Natural Gas prices rallied by 3%. Gold & Wheat prices firmed by 0.25%. Silver & Copper prices weakened by 0.6%, and Soybean prices slipped by 0.3%.
CAD remains under pressure, holding at four 1/2-year lows, struggling against a strengthening USD heading into the Bank of Canada's interest rate decision today. Investors see an 88% chance the BoC will cut interest rates by 50% at its meeting today, taking the rate to 3.25%. The loonie has found some support from the strengthening oil prices on the news that China could loosen its currency policy. The focus will be on BoC Governor Macklem's monetary policy statement and press conference with investors looking for the next steps in the CAD policy direction in 2025.
EURCAD continues under pressure on tariff concerns and domestic political uncertainty, while the CAD finds support from strengthening oil prices.
EUR retests 1.0500 amid a strengthening USD ahead of the US CPI and caution ahead of Thursday's ECB rate decision. The euro continues to face a combination of headwinds that is creating a perfect storm for further euro weakness. The prospect of rising inflation levels in the US could cause the Fed to pause further interest rate cuts, while domestic economic weakness across the EU will keep the ECB on track for more rate cuts. Elsewhere, political uncertainty in France & Germany, concern over Chinese economic growth, and the threat of tariffs are combining to keep pressure on the euro into 2025. Intraday, the US CPI will be the primary driver for the euro today.
GBPEUR hits its strongest level since March 2022 on the prospect of diverging interest rate policies between the BoE & the ECB, with expectations that the BoE will keep its domestic rates on hold in December.
GBP weakens towards 1.2700 ahead of the US inflation report. The pound softens as the USD gains traction on the prospect of a looser China currency policy and expectations the US CPI report will show that progress on inflation has hit a wall. We anticipate the pound will find support on dips with the prospect that the BoE will keep interest rates on hold at its December 19th meeting. Intraday, the US CPI will be monitored closely for signs of the Fed's next steps at its Dec 18th meeting.
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