USD/JPY, GBP/USD, EUR/USD Analysis: European Currencies in Consolidation Phase, Yen Declining

Better-than-expected US labour market data contributed to a sharp rise in the dollar against the yen and commodity currencies. At the same time, the euro and pound fell slightly, while managing to remain above strategic levels.

Is UK Labour Market Cool Enough for BoE?

The UK labour market is cooling, showing an increase in claims from claimants. In addition, wage growth is slowing. The data provided further evidence that the UK economy has moved into a new phase of the economic cycle, although the inflation genie remains at large.

Sunset Market Commentary

US November inflation data printed almost exact in line with expectations, with the headline at 0.1% M/M and 3.1% Y/Y and the core rising 0.3% M/M keeping the Y/Y measure unchanged at 4.0%. In a first reaction, the market briefly tried recent reaction function. No upside surprise in a first instance was seen as ‘soft’.

Economic Sentiment in Germany Is Improving but Slowly

Fresh business sentiment assessments from ZEW saw the sentiment index rise from 9.8 to 12.8, a positive surprise for analysts who had anticipated a slight decline to 9.6. The current optimism level is the highest since March this year but below the long-term average of 20.8.

November CPI: Moving on to 2024

The November CPI report was relatively uneventful. Falling gasoline prices and modest food inflation restrained the headline CPI to just a 0.1% increase in the month. Excluding food and energy prices, core CPI was up 0.3%, in line with consensus expectations. Core goods prices continued to decline even as the drivers of the dip changed, while core services inflation was a bit stronger in November compared to October due to faster inflation for shelter, medical care and transportation.

Trading Probably a Long-Drawn Countdown to Fed Decision

Today, market trading probably will be a long-drawn countdown to the Fed decision. Anything different from an unchanged decision will be a massive surprise. Markets keep a close eye on ‘guidance’ from the summary of economic projections (dots). The Fed skipping previous guidance on one additional rate hike and sticking to 50 bps of cuts end 2024 might be an ‘equilibrium’ scenario for markets. Also keep an eye on whether the Fed will raise the neutral policy rate.

UK Needs Lower Rates and a Weaker Currency

A series of macro statistics continue to be published to help build a picture of the economy ahead of the Bank of England’s final decision on Thursday. The economy is reported to have lost 0.3% for October, pulling back in volume to July levels.

Can Fed Deliver This Year's Santa Rally? Is UK at Risk of Recession?

The final Fed meeting of the year could also be the most eventful, with the central bank likely to acknowledge it's done with tightening and even signal rate cuts next year. The question is how many, with markets now pricing in four starting in May.

NZD/USD Slips Ahead of GDP, Fed Meeting

New Zealand releases GDP for the third quarter on Thursday, with expectations for a weak gain of 0.2% q/q, compared to a sharp gain in Q2 of 0.9%. On an annualized basis, the market consensus stands at 0.5%, following a 1.8% gain in the second quarter. An unexpected reading could have a strong impact on the direction of the New Zealand dollar.

Crypto Continued Retreat

The total capitalisation of cryptocurrencies has declined by almost 2% to $1.54 trillion in the past 24 hours. This is still a move in the opposite direction relative to the US and European indices, which are rising. Given that the current year is marked by impressive growth in cryptocurrencies, profit-taking looks like a logical end to it.