Ah, the world of forex—a universe as dynamic as the British weather! You see, the dollar’s standing firm like a sturdy oak, even on the brink of what many predict to be an interest rate cut in the United States. It’s an intriguing time, indeed, for us cautious onlookers and traders, who are busily adjusting their long-term rate expectations upwards.
Now, let us spare a thought for the beleaguered euro. The poor thing, it’s on track for a nearly 5% decline against the dollar this year. Presently hovering not far from the year’s lows at $1.0518. What a pickle! It’s revealing, though, that the gap in yields between the U.S. and Germany’s ten-year government bonds has widened significantly, by nearly 70 basis points in just a mere three months. It’s sitting at a substantial 216 basis points now!
Meanwhile, the yen seems to be having a bit of a struggle, like an underdog in the seventh round of a boxing match. It’s been on the back foot for a seventh consecutive session, slightly weaker at 154.17 per dollar during the morning’s trading. Analysts seem to believe a Japanese rate hike might be more of a January affair rather than this week.
Switching gears, the good old Federal Reserve announces its interest rate decision on Wednesday. From the looks of it, there’s a towering 94% chance of a hike, if we were to believe interest rate futures. Quite amusingly, this coincides with a remarkable surge in services-sector activity, which has reached a three-year high according to the S&P Global purchasing managers survey, a notable occurrence indeed.
Maintaining our focus on the American shores, the economic indicator GDPNow from the Atlanta Fed currently estimates a growth rate of 3.3% for the fourth quarter. This robust economic backdrop has been lifting yields and lending support to the dollar. A cut this Wednesday might well be the last for some time, according to traders using the CME FedWatch tool. In fact, they’ve projected a 37% chance of either just one more 25 basis point cut or none at all through the whole of 2025.
It’s fascinating to ponder Brent Donnelly’s viewpoint, who heads the Spectra Markets. He reckons that the Fed might now be a bit jittery. Inflation, he suggests, could make a comeback, likening it to a forgotten acquaintance returning just when you’ve settled in comfortably. Thus, a cautious approach from the Fed seems to be on the horizon.
Turning our eyes towards Blighty, the sterling made quite the bounce on Monday. Thanks to a business activity survey pointing to rising prices and imminent labour data, wage pressures appear to be making the Bank of England tread carefully, or should I say, tread bankly. Sterling’s buying power stood at $1.2695 during this period.
The Canadians are having a rather tumultuous time, aren’t they? The loonie (that’s the Canadian dollar, for you) has been put under duress. Falling interest rates coupled with the risk of U.S. tariffs have it reeling. Not to mention, Chrystia Freeland’s sudden resignation only adds fuel to the fire, leaving their government in a bit of a sticky situation.
As for our friends Down Under, the Australian and New Zealand dollars are lingering near the year’s lows. However, there’s a silver lining. Despite lingering weak economic indicators from China, markets are optimistic about government spending riding to the rescue. The Aussie was last steady at $0.6373, while the kiwi nudged up modestly to $0.5792. Intriguingly, New Zealand has increased its bond issuance forecast, nudging long-term yields higher.
Lastly, we find China’s yuan navigating through a gentle pressure at 7.2918 in offshore trade. With Chinese economic growth expectations appearing quite dour, their 10-year bond yields have plummeted to record lows. What a time, indeed, to be keeping an eye on the ever-fluctuating global financial stage.
