Article by: ETO Markets
The US dollar recently faced pressure due to the Federal Reserve's cautious stance and lower inflation numbers. The Fed hinted at the possibility of more rate cuts in 2024 than initially anticipated. This week, the focus will be on the impact of November’s Personal Consumption Expenditures (PCE) figures on the US dollar, which could strengthen the case for earlier rate cuts next year.
In the Asian session on Wednesday, Japan will release trade data, and no changes in interest rates are expected from China. The UK inflation figures will be a significant highlight of the day. Additionally, the US will release housing data, the Swiss National Bank will issue its quarterly bulletin, and the Bank of Canada meeting minutes will be made public. Investors will closely monitor Wall Street for any signs of a Santa’s rally.
The EUR/USD is on the rise for the second consecutive day, nearing 1.1000 and November's peak. This uptrend is driven by a weaker US Dollar due to increased risk appetite. While the overall outlook is negative for the Dollar, it doesn't necessarily translate to a positive outlook for the Euro.
Eurostat recently released the final November inflation figures, revising the Harmonized Index of Consumer Prices downward from -0.5% to -0.6%. The annual rate settled at 2.4%. Looking ahead, we anticipate the release of October Current Account and Construction Output data on Wednesday, along with preliminary Consumer Confidence for December.
Officials from the Federal Reserve (Fed) and the European Central Bank (ECB) are resisting market expectations, but the interest rate market indicates significant chances of rate cuts by April. This scenario, coupled with rising equity and commodity prices, puts pressure on the US Dollar and reinforces expectations of lower interest rates in 2024.
On Tuesday, US housing sector data presented a mixed picture, with Housing Starts unexpectedly increasing to 1.56 million, surpassing the market consensus of 1.36 million. However, Building Permits declined to 1.46 million, below the expected 1.47 million. Additional housing data, including Existing Home Sales, is scheduled for release on Wednesday.
The US Dollar gained strength on Tuesday in the European market, following a less optimistic statement from the Bank of Japan. However, the currency pair faced resistance around 145.00 and retraced to the mid-range of 144.00.
The Bank of Japan restated its commitment to a very accommodative monetary policy and hinted at the potential for more easing. Governor Ueda expressed uncertainty about the inflation outlook, causing the Yen to weaken against other major currencies.
