The dollar index was little changed around 106.6 on Thursday, as traders digest economic data and reinforce bets the Fed will cut interest rates next week. Initial jobless claims surprisingly rose to a nearly two-month high of 242K, well above forecasts of 220K. Also, the headline producer price index rose more than anticipated but the core index slowed in line with expectations. The odds for a 25bps rate reduction in the fed funds rate next week currently hold at 95%. Meanwhile, the ECB lowered borrowing costs by 25bps for a fourth time this year, matching forecasts. The greenback was little changed against the euro. On the other hand, the dollar appreciated against the Swiss franc after the Swiss National Bank cut the key rate by a bigger-than-expected 50bps.

Dollar Lacks Direction

The euro fell to below $1.05, approaching the two-year lows of $1.04 from late November after the European Central Bank cut its benchmark interest rates, as expected, exacerbated risks to growth by downwardly revising GDP projections. All three main rates were cut by 25bps to mark the fourth reduction in the current cycle, in line with persistent evidence of lower underlying inflation in the currency bloc. In turn, the central bank downwardly revised its GDP growth projections, including a 0.1 percentage point drop in the current year to 0.7%, and a 0.2 percentage point drop in the next year to 1.1%, significantly underperforming forecasts for the United States. The euro has also been pressured by political uncertainty in France and Germany.

Euro Approaches 2-Year Low

The Brazilian real strengthened to 5.9 per USD, rebounding from its record low of 6.09 on December 6th, as investors reacted to the Brazilian central bank’s surprise decision to raise the key interest rate to 12.25%, with guidance for two additional 1-percentage-point hikes. Policymakers emphasized that the move was essential for controlling inflation, ensuring economic stability, and sustaining employment. Supporting this stance, strong domestic economic activity and a resilient labor market persist, as evidenced by third-quarter GDP data showing accelerating growth. Moreover, inflation remains above target, with both headline and core measures leading to upward revisions in forecasts for 2024 and 2025, now at 4.8% and 4.6%, respectively. Meanwhile, the U.S. dollar is stabilizing after recent gains, as growing expectations of a Federal Reserve rate cut next week reduce the dollar’s appeal relative to higher-yielding emerging market currencies like the real.

Brazilian Real Rebounds on BCB's Surprise Rate Hike

The Indian rupee weakened to a record low of 84.9 per USD, pressured by continuous evidence of capital outflows and expectations of an incoming rate cut by the RBI. Domestic inflation fell to 5.5% in November, as expected, to return within the central-bank’s tolerance range. The lack of upside surprises was consistent with a scenario that may allow the RBI to deliver its first slash in the repo rate by the March quarter of 2025. Calls for rate cuts aligned with recent data underscoring a sharp slowdown in the country’s economic growth, with the GDP rising 5.4% annually in the September quarter, well below market expectations of 6.5%. Also pressuring the rupee, China announced large-scale policy changes to support the economy and lift equity markets next year, driving investors to pivot out of India and into China, and aligning with exchange data pointing to fresh outflows from rupee-denominated Indian capital markets.

Indian Rupee Weakens to Record Low

The Russian ruble hovered at the 105 per USD mark, weakening sharply from the one-month high of 99 touched on December 8th as sanctions that hamper the Russian financial system pressured the outlook on foreign exchange flows to Russian capital markets. The EU backed a preliminary move to sanction Chinese firms that enable financial transactions between Russian energy companies and European utilities and gas/fuel consumers, in addition to sanctioning more Russian tankers and other energy transporters. The move was a reaction to President Putin’s decree that facilitated the purchase of rubles by European companies through non-Western banks, which initially drove the currency to rebound from the near-three-year low of 115 following the West’s penalties on Gazprom bank. The ruble is due to fall 11% this year, largely due to sanctions and Moscow’s willingness to weaken the currency, aiding export revenues for its war budget.

Russian Ruble Slides from 1-Month High

The British pound traded around $1.276, near a one-month high, boosted by expectations of a relatively cautious Bank of England (BoE). Investors are eyeing UK economic data due Friday, which is expected to show economic growth and a recovery in manufacturing for October. The BoE is likely to hold interest rates steady next week and proceed cautiously next year, with markets pricing in only three small rate cuts by the end of 2025. In contrast, the European Central Bank (ECB) is expected to cut rates by 25 bps later in the day and may continue cutting rates through at least the first half of 2025, given Germany's economic struggles. The ECB’s faster pace of rate cuts reflects deeper challenges in the Eurozone compared to the UK, where inflation remains relatively high. Meanwhile, in the US, inflation data aligned with expectations, reinforcing views that the Federal Reserve may slow its policy tightening.

Sterling Hovers Near 1-Month High

The Swiss Franc depreciated to around 0.89 per USD, its lowest since November 22, following a larger-than-expected 50 basis point cut in the key interest rate by the Swiss National Bank (SNB). This marked the SNB's biggest rate reduction in almost a decade, exceeding the consensus expectation of a 25 basis point cut. Some analysts, however, had anticipated the 50 basis point move as a measure to stimulate economic growth amidst weak inflation. Policymakers cited declining underlying inflationary pressures and the need to maintain appropriate monetary conditions. Inflation fell from 1.1% in August to 0.7% in November, remaining within the SNB's target range of 0-2%.

Swiss Franc at Near 3-Week Low

The offshore yuan rose to around 7.26 per dollar, rebounding from the previous session as optimism grew over potential additional stimulus measures from China. Investors are closely monitoring developments at China’s annual Central Economic Work Conference, which began on Wednesday and serves as a forum for top officials to assess the economy and set priorities for 2025. Earlier this week, the Politburo pledged to implement a "moderately loose" monetary policy for 2025, along with more proactive fiscal measures aimed at stimulating consumption, stabilizing property and stock markets, and expanding domestic demand. Adding to the optimistic sentiment, the Asian Development Bank maintained its GDP growth forecasts for China at 4.8% in 2024 and 4.5% in 2025. However, the yuan’s gains were partly offset by reports that China may allow the currency to weaken in response to higher tariffs under a second Trump presidency, marking a shift from its long-standing commitment to currency stability.

Offshore Yuan Rebounds on Stimulus Optimism

The New Zealand dollar rose toward $58 on Thursday, after slipping to a two-year low in the previous session. This modest rebound came as investors digested benign US consumer inflation report, which bolstered expectations of a 25bps rate cut by the Federal Reserve next week. However, the Kiwi remains under pressure amid reports that Beijing is considering allowing the yuan to depreciate further next year to compensate for any impact from US tariffs. A weaker yuan tends to weigh on the Kiwi, given New Zealand's reliance on China as a key export market. Domestically, growing expectations of another 50bps rate cut by the Reserve Bank of New Zealand in its February meeting continued to exert downward pressure on the local currency.

New Zealand Dollar Rebounds

The South Korean won tumbled past 1,430 per dollar, moving back to its lowest level in over two years, as the Bank of Korea is expected to deliver a back-to-back rate cut in January. Investors anticipate the central bank to cut its interest rate by 25bps in January, with three more reductions expected in 2025, potentially bringing the rate down to 2% amid weakening economic sentiment driven by ongoing political turmoil. The government is also expected to propose a supplementary budget to support economic growth next year. Meanwhile, traders remain focused on political instability, as President Yoon Suk Yeol has refused to step down despite parliament’s impeachment push. Externally, the won remains under pressure from the dollar’s ongoing strength, supported by rising US Treasury yields, despite rate cut expectations bets inflation data that came in line with expectations.

South Korean Won Tumbles

The Japanese yen remained around 152.3 per dollar on Thursday, after a three-day decline, as uncertainty about the timing of potential interest rate hikes by the Bank of Japan continued to weigh on the currency. Market expectations for a December rate hike were scaled back following reports that the BOJ sees "little cost" in waiting before making a move. Some BOJ officials have left the door open for a rate increase next week, depending on incoming data and market developments. Meanwhile, there are indications that some members of the central bank view the risk of a weak yen driving up inflation as less concerning. Investors are now looking ahead to Friday’s Japanese business sentiment figures for further insight into the country's economic outlook. Externally, the yen faced additional pressure from a strong US dollar, despite recent US inflation data reinforcing expectations of a Federal Reserve rate cut next week.

Japanese Yen Under Pressure Amid BOJ Uncertainty

The dollar index held around 106.5 on Thursday after rising for four straight sessions even as the latest US consumer inflation data cemented bets on a Federal Reserve interest rate cut next week. The CPI report showed that both headline and core inflation rates matched expectations in November, paving the way for the Fed to proceed with rate reductions. Markets are now assigning a nearly 100% chance that the Fed will deliver another 25 basis point reduction next week. Investors also look ahead to producer inflation data on Thursday for further guidance. Meanwhile, the dollar found support from recent weakness in the euro and yuan amid a dovish monetary policy outlook in the Eurozone and China. However, the greenback lost some ground  against the Aussie following strong Australian jobs data.

Dollar Holds Gains After Inflation Data

The Australian dollar appreciated past $0.64 on Thursday, rebounding from a one-year low touched in the previous session as stronger-than-expected jobs data prompted traders to dial back bets on an earlier interest rate cut. Data showed that Australia’s unemployment rate fell to an eight-month low of 3.9% in November despite forecasts for a slight increase to 4.2%. Employment also rose 35,600 last month, exceeding market expectations of 25,000. Markets are now assigning around a 50% chance that the Reserve Bank of Australia will cut rates in February, down significantly from 68% before the data. Meanwhile, the RBA kept its policy rate unchanged at 4.35% on Tuesday, but signaled a more dovish outlook amid easing inflation. RBA Governor Michele Bullock also noted that the shift in the policy statement’s language was deliberate, reflecting softening economic data.

Aussie Dollar Rebounds on Strong Jobs Data

The Mexican peso strengthened past 20.19 per US dollar, recovering from a March 2022 low of 20.64 on November 26, as hawkish signals from the Bank of Mexico compounded with dovish expectations for the US Fed. US inflation data for November, which showed a slight increase in headline inflation and steady core CPI, raised expectations that the Federal Reserve will reduce rates in its upcoming December meeting. Domestically, Mexico's inflation eased, with November's headline inflation falling to 4.55% year-over-year, its lowest in eight months, and core inflation easing to 3.58%, the softest reading since April 2020. Meanwhile, Mexico’s unemployment rate dropped to 2.5% in October, its lowest since March and well below the forecasted 2.9%. This positive economic data fueled expectations for continued flexibility in Banxico’s rate-cutting cycle, aligning with Governor Irene Espinosa’s cautious outlook ahead of the December 19 meeting.

Mexican Peso Extends Recovery

The South African rand appreciated to around 17.7 per USD, reaching its highest since early November, amid a renewed increase in prices of precious metals, particularly gold. US November inflation came in line with market expectations, supporting bets that the Federal Reserve will cut rates next week. Locally, South Africa's annual inflation ticked up to 2.9% in November 2024, just above the four-year low of 2.8% seen in October. The slight increase in inflation still keeps it below the central bank's 3% to 6% target range, making it likely the monetary policy committee to deliver another cut in borrowing costs next month. The South African Reserve Bank (SARB) reduced the repo rate from 8% to 7.75% on November 21st, continuing the gradual easing cycle that began in September. Governor Lesetja Kganyago recently emphasized a careful approach to interest rate decisions, pointing to the uncertainty surrounding the global economic outlook.

South African Rand Firms

The Canadian dollar strengthened to around 1.41 per USD in December, rebounding from its lowest level since April 2020 of 1.418 on December 10th, as the Bank of Canada signaled a slower pace of future interest rate cuts following its recent 50bps reduction. The loonie's gain was driven by markets already pricing in the rate cut and focusing on the central bank’s more cautious outlook for future policy, which provided greater stability. While Canada’s policy rate remains significantly lower than the US Federal Reserve’s, the Bank of Canada’s shift toward a more measured approach reassured investors. Additionally, fiscal measures, such as a sales tax holiday and efforts to control inflation, are expected to support short-term economic growth, further boosting investor confidence. Meanwhile, expectations for a Federal Reserve rate cut grew after US inflation data aligned with expectations, contributing to a more favorable environment for the loonie.

Canadian Dollar Strengthens on Slower Rate Cuts Guidance

The dollar index hovered near 106.5 on Wednesday, easing slightly as investors remained confident that the Federal Reserve will cut rates next week. The latest CPI report showed inflation rising 2.7% annually in November, a slight uptick from the previous month, while core inflation, excluding food and energy, held steady at 3.3%. Both measures posted 0.3% monthly increases. With producer price data due Thursday, these inflation reports will be the final data points for Fed officials before their upcoming meeting. While a third consecutive rate cut of 25bps is widely anticipated, persistent inflation could prompt the Fed to slow future cuts. Still, the dollar remains near two-week highs, bolstered by speculation that Chinese authorities might let the yuan weaken further to counter the impact of tariffs.

DXY Pares Gains after Inflation Data

The Swiss franc was relatively stable around 0.88 per USD, its lowest in a week, amid a slightly stronger greenback and in anticipation of SNB meeting. The central bank is expected to cut its key policy rate by 25 basis points (bps) at its meeting on December 12th, marking the fourth consecutive reduction, as inflation remains "comfortably" within the central bank’s 0-2% target range. A small minority of economists anticipates a larger half-point cut at the meeting to stimulate economic growth and curb speculation in the franc. Consumer price inflation increased to 0.7% in November, up from 0.6% in October, but below the forecasted 0.8%. Downward pressure is expected in January due to anticipated adjustments in electricity prices. Switzerland's economy is growing slowly, with GDP expanding 0.4% quarter-on-quarter in Q3, down from 0.6% in Q2, partly due to weak manufacturing linked to geopolitical tensions and recession in key trading partner Germany.

Swiss Franc Hovers Around 1-Week Low

The dollar index edged up to 106.6 on Wednesday, its highest level in nearly two weeks, as traders awaited the US CPI report for clues about the Federal Reserve's plans for next week. The data is expected to indicate that the disinflation process has stalled, but to reinforce expectations of a 25bps reduction in the federal funds rate. Market odds for such a move currently stand at 86%. Additionally, reports suggesting that Chinese authorities might allow the yuan to depreciate further to offset the impact of Trump's tariffs provided additional support for the greenback. The dollar also gained ground against the euro, as the European Central Bank is widely anticipated to implement a fourth rate cut tomorrow. However, the greenback remained steady against the Canadian dollar, with the Bank of Canada expected to lower interest rates by 50 basis points later in the day.

Dollar Hits 2-Week High

AUDUSD decreased to a 13-month low of 0.63. Over the past 4 weeks, Australian Dollar US Dollar lost 2.88%, and in the last 12 months, it decreased 3.32%.

Australian Dollar Hits 13-month Low

The South African rand was around 17.9 per USD, down slightly from a one-month high of 17.8 hit on December 9, as falling precious metals prices and a stronger dollar weighed on the currency. Meanwhile, investors remained focused on the outlook for interest rates and the global economy. Domestically, South Africa's annual inflation ticked up to 2.9% in November 2024, just above the four-year low of 2.8% seen in October. The slight increase in inflation still keeps it below the central bank's 3% to 6% target range, making it likely the monetary policy committee to deliver another cut in borrowing costs next month. The South African Reserve Bank (SARB) reduced the repo rate from 8% to 7.75% on November 21st, continuing the gradual easing cycle that began in September.

South African Rand Weaker

The offshore yuan slipped toward 7.28 per dollar, reversing earlier advances and ending two consecutive sessions of gains, as the risk of higher trade tariffs under a second Donald Trump presidency looms. Trump has proposed a 10% universal tariff and a 60% tariff on Chinese imports, prompting Chinese leaders and policymakers to consider allowing the yuan to weaken in 2025. Meanwhile, investors are closely monitoring China’s annual Central Economic Work Conference, which commenced today. This closed-door meeting, typically spanning two to three days, provides a platform for top Chinese leaders to assess the state of the economy and set priorities for the coming year. Earlier this week, China’s Politburo committed to a 'moderately loose' monetary policy for 2025, while pledging more proactive fiscal measures aimed at boosting consumption, stabilizing property and stock markets, and expanding domestic demand.

Offshore Yuan Slips Amid Looming Trump Trade Risks

USDNOK increased to a 13-month high of 11.20. Over the past 4 weeks, US Dollar Norwegian Krone gained 1.1%, and in the last 12 months, it increased 2.13%.

Norwegian Krone Hits 13-month Low

The New Zealand dollar steadied around $0.58 on Wednesday, but remained close to its lowest level since November last year. The Kiwi’s recent drop mirrored a decline in the Aussie dollar after a dovish tilt to the Reserve Bank of Australia’s policy outlook. Domestically, the Reserve Bank of New Zealand has already reduced its official cash rate by 125bps this year to 4.25%. Markets are currently pricing in a 59% chance of another 50bps cut at the central bank’s next meeting in February, further weighing on the local currency. Externally, the Kiwi faced additional headwinds from a strong US dollar, as investors awaited U.S. inflation data for more clues on the Federal Reserve's monetary-easing path.

New Zealand Dollar Hovers Near 13-Month Low

The offshore yuan strengthened past 7.24 per dollar, marking its third consecutive session of gains, as market attention shifted to China’s annual Central Economic Work Conference, which commenced today. This closed-door meeting, typically spanning two to three days, provides a platform for top Chinese leaders to assess the state of the economy and set priorities for the coming year. Meanwhile, earlier this week, China’s Politburo committed to a 'moderately loose' monetary policy for 2025, while pledging more proactive fiscal measures aimed at boosting consumption, stabilizing property and stock markets, and expanding domestic demand. The last time China used the term 'moderately loose' to describe its monetary policy was in 2009, following the global financial crisis. These moves signal a determined effort to navigate economic headwinds and support sustainable growth.

Offshore Yuan Extends Gains as Key Meeting Begins

The Australian dollar held steady around $0.638 on Wednesday, but remained near four-month lows as the Reserve Bank of Australia's dovish stance continued to weigh on the currency. On Tuesday, the RBA kept its policy rate unchanged at 4.35% for the ninth consecutive meeting, as expected. However, the central bank expressed growing confidence that inflation was gradually returning to its target. RBA Governor Michele Bullock also noted that the shift in the policy statement’s language was deliberate, reflecting softening economic data. Markets are currently pricing in a 63% chance of a quarter-point rate cut at the RBA’s February meeting, with two rate cuts fully priced in by May. Investors are now focused on Australian employment data set for release on Thursday for further insights into the economy. Externally, the Aussie faced additional pressure from a strengthening greenback ahead of a key US inflation report.

Aussie Dollar Languishes Near 4-Month Lows

The South Korean won strengthened toward 1,430 per dollar, recovering losses from a more than two-year low in the previous session after government authorities pledged active measures to stabilize markets amid political uncertainty. South Korea's top economic officials recently convened to discuss financial strategy and structural reforms, announcing steps to bolster market stability, enhance FX liquidity, and maintain creditworthiness. However, Bank of Korea Governor Rhee Chang-yong cautioned that the won is unlikely to return to previous levels due to lingering political risks and market instability. On the economic front, South Korea's seasonally adjusted unemployment rate held steady at 2.7% in November, unchanged from October, which marked its highest level since June. Meanwhile, traders are eyeing upcoming US inflation data and China’s economic work conference, expected to outline next year’s policies and growth targets.

SK Won Recovers as Authorities Vow Support

The Japanese yen rose slightly to around 151.6 per dollar on Wednesday but remained close to its lowest level in two weeks as the dollar strengthened ahead of a key US inflation report. Domestically, investors were processing mixed economic data from Japan. The Reuters Tankan index turned negative in December, while the BSI manufacturing sentiment reading showed improvement in the fourth quarter. Additionally, data revealed that producer prices in Japan surged at the fastest pace in 16 months in November. On the monetary policy front, markets remain divided on whether the Bank of Japan will raise interest rates in December or January. Recently, BOJ Governor Kazuo Ueda suggested that a rate hike may be imminent, citing economic performance in line with expectations. However, BOJ board member Toyoaki Nakamura raised concerns about the sustainability of wage growth and pointed to signs of economic weakness, adding uncertainty to the outlook.

Japanese Yen Hovers Near 2-Week Low

The dollar index remained steady around 106.3 on Wednesday, following three consecutive days of gains, as investors prepared for a crucial US inflation report that could have a significant impact on Federal Reserve policy. A stronger-than-expected inflation reading could delay the Fed's plans to reduce borrowing costs, potentially supporting the dollar. Despite this, markets are currently pricing in an 86% chance of a 25-basis-point rate cut by the Fed later this month, though the outlook for 2025 remains highly uncertain. Traders are also closely watching interest rate decisions from the Bank of Canada and the European Central Bank this week, both of which are expected to implement further rate cuts. Additionally, investors are keeping an eye on developments from China’s Central Economic Work Conference, especially after Beijing recently pledged additional monetary support.

Dollar Holds Gains Ahead of CPI Report

The dollar index gained traction and rose to above 106.5 on Tuesday, the highest in two weeks, amid dovish expectations for major central banks outside the US ahead of the domestic CPI print this week. The Bank of Canada is expected to deliver a 50bps rate cut tomorrow and the ECB is due to cut its rates by 25bps on Thursday, pressuring key currencies of n the US dollar index. In turn, data revealed that US inflation expectations for the year ahead rose to 3% in November, up from 2.9% in October, signaling ongoing concerns about persistent price pressures. Additionally, last week's data showed stronger-than-expected job growth in November, although the unemployment rate edged up to 4.2%. Despite these mixed signals, markets are currently pricing in an 86% probability that the Fed will reduce rates by 25 basis points this month, though the outlook for 2025 remains highly uncertain.

US Dollar Index Gains Traction

NZDUSD decreased to a 13-month low of 0.58. Over the past 4 weeks, New Zealand Dollar US Dollar lost 2.87%, and in the last 12 months, it decreased 5.28%.

New Zealand Dollar Hits 13-month Low

The Brazilian real appreciated past 6.06 per USD, halting the selloff that drove it to record lows of 6.09 on December 6th, as the latest inflation data cemented hawkish expectations for the Brazilian central bank. Annual inflation rose to 4.87% in November, up from 4.76% in October and slightly above forecasts of 4.85%, marking a 14-month high. The increase aligns with the central bank's concerns that rising inflation expectations, combined with elevated government spending, could intensify price pressures. While fiscal stimulus has supported household consumption and recent GDP growth, it has also added to inflationary risks. The data precedes this week’s monetary policy decision, where a substantial 75bps rate hike is widely anticipated to steer inflation back within target. Further bolstering the real, China, Brazil’s main trading partner, announced looser monetary policy and proactive fiscal measures, improving commodity demand prospects and supporting export-driven currencies.

Brazilian Real Firms as Inflation Fuels Hawkish Bets

The Australian dollar weakened past $0.64 on Tuesday, reversing gains from the previous session, after the Reserve Bank of Australia kept its policy rate unchanged at 4.35% for the ninth consecutive meeting. However, the central bank's slightly more dovish tone in its policy statement spurred market expectations of an earlier interest rate cut than previously anticipated. Last week, data showed Australia's economy grew by just 0.3% quarter-on-quarter in the three months to September, falling short of the 0.4% growth expected by markets. Additionally, business confidence in Australia sharply weakened in November, further dampening the outlook for the economy. Meanwhile, the Aussie found some support late on Monday, following China's Politburo announcement of "more proactive" fiscal measures and a "moderately" looser monetary policy next year aimed at stimulating economic growth.

Aussie Dollar Falls on RBA’s Dovish Hold

The Japanese yen weakened past 151 per dollar on Tuesday, hitting its lowest point in over a week, amid ongoing uncertainty about the timing of the next Bank of Japan interest rate hike. Markets remain divided on whether the central bank will raise rates in December or January. Recently, BOJ Governor Kazuo Ueda suggested that a rate hike is imminent, citing the economy's performance in line with expectations. However, BOJ board member Toyoaki Nakamura raised concerns about the sustainability of wage growth and highlighted signs of economic weakness, adding to the uncertainty. On the economic front, final data showed Japan’s economy grew by 0.3% quarter-on-quarter in the three months to September, exceeding both the preliminary estimate and market expectations of 0.2%. Coupled with stronger-than-expected wage data from last week, the latest economic indicators are fueling a more hawkish outlook for BOJ policy.

Japanese Yen Weakens Amid BOJ Rate Hike Uncertainty

The New Zealand dollar fell to around $0.583 on Tuesday, reversing gains from the previous session, pressured by a subdued outlook weighed by the Reserve Bank of New Zealand's anticipated continuation of its aggressive policy-easing approach. The central bank recently cut rates by another 50 bps, bringing the cash rate to 4.25%, marking a total reduction of 125 bps this year, and signaled further substantial cuts early next year. This aligns with recent remarks by New Zealand's Prime Minister, who emphasized a commitment to lowering inflation and interest rates to stimulate the economy. Meanwhile, the Kiwi dollar found some support late Monday after China pledged “more proactive” fiscal policies and “moderately” looser monetary measures for 2025 to boost domestic consumption, as China is New Zealand’s largest trading partner. Markets are now looking forward to the upcoming US inflation data, which could offer insights into the Federal Reserve’s monetary policy direction.

New Zealand Dollar Declines

The offshore yuan strengthened further to around 7.25 per dollar after China’s top leaders signaled plans for more aggressive stimulus measures next year to support the world’s second-largest economy. China’s Politburo pledged a “moderately loose” monetary policy for 2025, its first major shift since 2011, while vowing more proactive fiscal measures to boost consumption and stabilize property and stock markets. The announcement, released late Monday after market hours, also emphasized the government's focus on expanding domestic demand. Investors are now focusing on this week’s Central Economic Work Conference for more details on economic support. The conference will likely outline its economic priorities and targets for 2025, as the latest inflation figures point to persistent deflationary pressures, highlighting the need for stronger measures. Still, the yuan held near a key level, reflecting trader caution amid anticipated China rate cuts and potential US trade tariffs.

Offshore Yuan Extends Rebound

The dollar index held steady around 106.1 on Tuesday, following two consecutive sessions of gains, as investors awaited crucial inflation data later this week that could shape expectations for Federal Reserve policy. On Monday, data revealed that US inflation expectations for the year ahead rose to 3% in November, up from 2.9% in October, signaling ongoing concerns about persistent price pressures. Additionally, last week's data showed stronger-than-expected job growth in November, although the unemployment rate edged up to 4.2%. Despite these mixed signals, markets are currently pricing in an 86% probability that the Fed will reduce rates by 25 basis points this month, though the outlook for 2025 remains highly uncertain. Investors are also eyeing monetary policy decisions from central banks in Australia, Canada, and Switzerland this week, which could add further volatility to global markets.

Dollar Strengthens Ahead of Key Inflation Data

The South Korean won stabilized at 1,428 per dollar after hitting a more than two-year low in the previous session, buoyed by optimism surrounding economic stimulus from China, South Korea’s largest trading partner. China announced a shift toward a “moderately loose” monetary policy stance for next year, marking a departure from its “prudential” approach of the past decade. However, despite this support, the won remained under pressure as investor sentiment remained subdued amid mounting concerns over political instability. Over the weekend, President Yoon narrowly survived an impeachment attempt following intense backlash over a controversial martial-law decree. Although he managed to retain his position, calls for his resignation have intensified, with opposition parties vowing to continue efforts to remove him from office.

South Korean Won Stabilizes

USDCAD increased to a 4-1/2-year high of 1.42. Over the past 4 weeks, US Dollar Canadian Dollar gained 1.85%, and in the last 12 months, it increased 4.44%.

Canadian Dollar Hits 4-1/2-year Low

The US Dollar exchange rate rose above 85 Indian Rupee in the foreign exchange interbank market.

Indian Rupee traded above 85

The Mexican peso strengthened past 20.19 per US dollar, continuing its rebound from a low of 20.64 on November 26, the weakest level since March 2022, as inflation data showed a marked easing. November’s inflation fell short of expectations, with headline inflation dropping to 4.55% year-over-year, its lowest in eight months, and core inflation easing to 3.58%, the softest reading since April 2020. This positive price data, coupled with Mexico’s unemployment rate falling to 2.5% in October, its lowest since March and well below the forecasted 2.9%, boosted expectations for continued flexibility in Banxico’s rate-cutting cycle. This aligns with Banxico Governor Irene Espinosa’s cautious outlook last week, in which she stated that significant changes would be needed before considering a more aggressive policy shift at the December 19 meeting, suggesting Banxico is in no rush to aggressively loosen monetary policy.

Mexican Peso Sustains Rebound

The South African rand appreciated towards 17.7 per USD, its highest in a month, mainly supported by rising prices of precious metals, particularly gold. Meanwhile, investors remained focused on the outlook for interest rates and the global economy. Expectations remain that the US Federal Reserve will need to slow the pace of interest rate hikes, although a 25 bps rate cut is widely anticipated in November. Domestically, the South African Reserve Bank decided to lower the repo rate from 8% to 7.75% on November 21st, maintaining the gradual pace of rate cuts that began in September, with analysts predicting more cuts from next year. South African Reserve Bank Governor Lesetja Kganyago said in an interview with CNBC Africa that policymakers were proceeding with care on adjusting interest rates to avoid having any future regrets.

South African Rand at 1-Month High

The Brazilian real strengthened past 6.07 per USD, halting the selloff from its record low of 6.09 seen on December 6th, as hawkish expectations for the Brazilian central bank compounded with an improved outlook for foreign currency inflows. The latest Focus Bulletin underscored rising hawkish arguments, with market projections for 2024 inflation climbing to 4.84% from 4.71% and GDP growth estimates increasing to 3.39% from 3.22%. Additionally, China, Brazil’s key trading partner, announced looser monetary policy and more proactive fiscal measures improving the outlook for commodity demand, and supporting export-tied currencies. Investors now await key inflation data ahead of this week’s monetary policy decision, which is widely expected to include a jumbo 75bps hike to rein inflation back within the target range.

Brazilian Real Halts Selloff on Hawkish Bets

The Indian rupee plunged to nearly 85 per USD for the first time in history in December, as evidence of fresh capital outflows magnified the impact of dovish monetary policy and signs that the economy is slowing more than expected. The Chinese government signaled large-scale policy changes to support the economy and lift equity markets next year, driving investors to pivot out of India and into China, and aligning with exchange data pointing to fresh outflows from rupee-denominated Indian capital markets. On top of that, the Indian GDP rose by 5.4% annually in the September quarter, well below market expectations of 6.5% to reflect the softest pace of growth since the December quarter of 2022. This drove the RBI to halve its cash reserve ratio to 4%, increasing liquidity and the supply of rupees. In turn, the RBI nominated Sanjay Malhotra to serve as the new Governor, replacing Shaktikanta Das as his term ends in 2024.

Rupee Weakens to Fresh Record Low

The British pound rose to $1.28, near a four-week high, as investors awaited key economic data and central bank meetings. UK data, due next Friday, is expected to show a rebound in the economy and a recovery in manufacturing for October. The Bank of England is anticipated to keep interest rates unchanged at its December 19 meeting. Meanwhile, in the US, markets are bracing for inflation data and have largely priced in a 0.25% rate cut by the Federal Reserve next week. Investors are also focused on the European Central Bank’s meeting on Thursday, where a similar 0.25% rate cut is expected, reducing the ECB's deposit rate to 3%.

Sterling Nears 4-Week High

The New Zealand dollar rose to around $0.586 on Monday, recovering from an earlier loss and bouncing back from a more than 1% drop in the previous session. The Kiwi dollar gained support after China pledged “more proactive” fiscal policies and “moderately” looser monetary measures for 2025 to boost domestic consumption, as China is the largest trading partner of New Zealand. Domestically, the Kiwi remained under pressure due to a bearish outlook. New Zealand Prime Minister Luxon reiterates his commitment to reducing inflation and interest rates to support the economy. This aligns with the Reserve Bank of New Zealand's recent decision to cut rates by 50 basis points to 4.25% last month and signals further substantial rate cuts early next year. Meanwhile, markets are looking forward to the upcoming US inflation data, which could offer insights into the Federal Reserve’s monetary policy direction.

The offshore yuan strengthened past 7.28 per dollar, holding the rebound from the five-month low of 7.3 on December 3rd as large pledges of economic support from the Chinese government raised bets that the economy may recover. The Politburo announced it will shift to a “moderately loose” monetary policy stance next year from the “prudential” stance it has taken in the last decade, in addition to implementing “more proactive” fiscal support instead of “proactive”. The rhetoric change was joined by pledges to support equity markets and property prices. This drove investors to bet that the Chinese government may extend it ambitious target of 5% GDP growth into next year, lifting export bets and supporting the local currency despite the impact of loose monetary policy. The possibility of stronger domestic demand would also weigh against the impact of tariff threats of US President-elect Trump. All eyes are now on the Central Economic Work Conference for more details on economic support.

Chinese Yuan Recovers

The euro hovered near $1.05, remaining only slightly above the two-year lows reached in late November, as traders brace for the ECB monetary policy decision. The ECB is widely expected to cut the key deposit rate by 25 basis points for the fourth time, bringing it down to 3% on Thursday. Market participants now predict a faster pace of policy easing, with expectations of a quarter-point rate reduction at every meeting through June, potentially lowering the benchmark deposit rate to 2%. The Eurozone economy continues to exhibit signs of weakness, compounded by political uncertainty in France and Germany, as well as geopolitical risks following Donald Trump's election. Adding to the cautious sentiment, ECB President Christine Lagarde, during a parliamentary hearing, warned of a potential slowdown in Eurozone growth in the months ahead, emphasizing that downside risks dominate the medium-term outlook.

Euro Remains Under Pressure, ECB Awaited

USDHKD decreased to a 4-week low of 7.77. Over the past 4 weeks, US Dollar Hong Kong Dollar lost 0.01%, and in the last 12 months, it decreased 0.38%.

Hong Kong Dollar Hits 4-week High

The Japanese yen remained stable around 150 per dollar on Monday, continuing to trade within a narrow range for the past week as investors digested a revision to Japan's economic growth data. Final figures revealed that Japan’s economy grew by 0.3% quarter-on-quarter in the three months to September, surpassing the preliminary estimate and market expectations of 0.2%. Coupled with stronger-than-expected wage data released last week, the latest economic indicators support a more hawkish outlook for the Bank of Japan’s monetary policy. However, markets remain divided on the timing of the next rate hike, with some analysts predicting it could come in December, while others anticipate January. Recently, BOJ Governor Kazuo Ueda stated that a rate hike is imminent as the economy is performing in line with expectations, while BOJ board member Toyoaki Nakamura expressed concerns about the sustainability of wage growth and pointed to signs of economic weakness.

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Sterling Nears 4-Week High

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