Ahead Today G3: US PCE inflation, US Personal Spending, US Personal income, US University of Michigan Sentiment
US data yesterday continued to point to a relatively resilient US economy, with applications for US unemployment benefits falling to 220k after spiking earlier this month. Continuing claims also fell to 1.87mln. In addition, US Q3 GDP was revised up to 3.1% from 2.8%, helped by stronger than expected personal consumption spending. Resilience in the US labour market and strong economic growth at least so far reduces the need for imminent rate cuts. Given that Chair Jerome Powell said future easing would require fresh progress on inflation, markets are watching for November's PCE inflation later today for further clues.
Meanwhile even as we approach the holiday season, the US House rejected a Trump-backed funding plan, which included suspending the federal debt limit, with 235 votes against and 174 in favour. Importantly, over 30 Republicans joined Democrats in opposition and without congressional action, government funding will lapse on Friday.
The USD index rose marginally in Asian trade to 108.29 near fresh 25-month highs.
EUR/USD paused in the European session but as US trading opened the cross dived below 1.04 again and is now back close to 1.0350.
EUR/GBP tracked higher during yesterday's session as a dovish vote split pushed Gilt yields lower. As expected, the BoE decided to keep the Bank Rate unchanged at 4.75% yesterday. The vote split had a dovish twist with 6 members voting for an unchanged decision and Dhingra, Ramsden and newcomer Taylor voting for a 25bp cut. The BoE retained much of its previous guidance noting that "a gradual approach to removing policy restraint remains appropriate". UK retail sales released just now were weaker than expected across all gauges, triggering some further GBP weakness. GBP/USD is on the defensive in early European trade near $1.2470.
As expected, the Riksbank lowered the policy rate by 25bp to 2.50% and indicated only one more cut in H1. A hawkish cut which strengthened the SEK and supported the call for tactical downside in EUR/SEK. EUR/SEK dropped some ten figures towards the lower end of 11.40's before erasing some of the losses in the Asian session. Meanwhile, NOK/SEK was down 1.5 figures to below 0.9650. Norges Bank did not rock the boat, but the NOK traded on the defensive as focus shifts to the looming easing cycle that will probably start in March.
USD/JPY fell 0.2% overnight to 156.89 with the JPY among the better performers. There has been relentless selling of the JPY this week, and USD/JPY was on the verge to break above 158. However, Japan FM Kato expressed concerns and talked about appropriate action if there are excessive moves. The yen was also supported by the stronger than expected November CPI reading that supports the case for an eventual rate hike from the BoJ.
USD/CNY pair rose 0.2%, hitting its highest level since November 2023 at 7.3053. The PBOC left its benchmark loan prime rate unchanged at 3.10%, as widely expected, with the central bank seen having limited headroom to cut rates further amid sustained yuan weakness.
Meanwhile, South Korea’s central bank agreed with the National Pension Service to expand the size and duration of a currency swap deal to US$65bn from US$50bn, with the duration extended by another year to end 2025. This could help manage the weakness in the KRW. USD/KRW rose 0.4% to 1,449.73 trading close to its highest point in 15 years.
USD/SGD pair was steady at 1.3597, while USD/INR pair is holding close to record highs above 85 rupees.
| Interest Rate Swaps | EUR | USD | GBP |
| 3Y | 2.20 | 4.12 | 4.21 |
| 5Y | 2.23 | 4.09 | 4.10 |
| 10Y | 2.32 | 4.07 | 4.10 |
