North American FX Open - Back to monetary policy

The USD is largely softer at the start of the day, with the DXY USD Index some distance off yesterday's Trump win inspired high of 105.44.

US stocks futures are again positive, albeit small, while US yields remain frothy but off best levels too.

Market attention has likely turned back to monetary policy and the FOMC. Market base case remains for a -25BPs move today, while we are contemplating whether Powell will express relative confidence on the economy amid concerns over potential Trump related inflation and market volatility ahead and as a result reduced easing ahead.

Ahead, JPM tweaked its forecast for the US interest rate path on the Trump effect, seeing a quarterly pace of easing starting in March.

Data wise, some focus will turn to US initial claims and preliminary non-farm productivity and unit labour costs highlights, with the UK DMP 1 year CPI expectations also scheduled.

At the start of the day, the BOE is expected to reduce the Bank Rate by -25BPs to 4.75%. The vote and tone could be key though as the market wrestles with the likelihood of action in December too as governor Bailey walks the line between the recent drop in UK services inflation and last week’s budget which brought increased government spending.

Overnight, NOK/SEK semi-spiked as yield differentials were the driver. The Riksbank cut its policy rate by -50BPs to 2.75%, as expected while the Norges Bank left well alone at 4.50%, also as widely forecast.

The USD/YEN charge peaks for now at 154.70-71, with the relative pullback since coinciding with Japanese workers’ base salaries rose 2.6% y/y in September vs 2.4% the month previous, which was a strongest showing in 31 years, supporting the BOJ’s view that the economy continues to recover track and backing the case for a rate hike in December or January. See bottom middle of the Dashboard and implied probability of a BOJ hike in December stands at 45%, a highest since October 23. Also, Japan’s chief currency official Mimura warned the MOF will take appropriate action against any excessive FX moves (and we are seeing one-sided, sudden moves), in a possible attempt to slow the YEN slide post-Trump win.

In Asia, the Chinese trade surplus spiked in October to near Usd 96bln, as exports surged 12.7% y/y, a fastest since July 2022, extending a boost to the economy. In another supportive move, Bbg reports regulators told banks to lower the rates they paid for demand deposits from other financial institutions and the PBOC set the yuan reference rate at 7.1659, the weakest in almost a year.

The EUR, meanwhile, is showing some resilience in the face of the seemingly negative news of German Chancellor Olaf Scholz calling for a confidence vote on January 15 and a snap election at the end of March after his coalition collapsed over economic revival plans. Scholz also sacked finance minister Christian Lindner.

ECB and SNB speak scheduled too.

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