November 28, 2024

“Volatility was particularly elevated yesterday, with several in the G10 moving by 1% or more despite few high-impact pieces of data. Low liquidity in the US during Thanksgiving provides an environment for that to continue as the market looks to eurozone inflation data.”

Tim Hallinan – Trading Director

USD

The dollar index fell 0.8% yesterday as it continues the patrial retracement of its 7% autumn rally. Some notable winners included the yen (+1.3%), linked to rising bets on a December hike; NZD (+1.0%), as a 50bp cut led to the pricing out of the risk for 75bps; and the euro (+0.7%), which was boosted by some hawkish commentary from the ECB’s Schnabel. On top of the broad idiosyncratic currency drivers, an uptick in the implied probability for a Fed December rate cut this week to 62% has shrunk its rate advantage across the board.

MXN and CAD are outperforming this morning after Trump applauded a ‘wonderful conversation’ with President Claudia Sheinbaum in a Truth Social post overnight, in which he said that they would be ‘effectively closing our southern border’. That lent some extra support to the conclusion that the 25% tariffs were merely a starting point for dealmaking. US traders are at home celebrating Thanksgiving and many are taking a long weekend – while there is no data out today, thin liquidity conditions may amplify moves in response to the data in Europe.

GBP

Sterling rose nearly 1% as it caught a bid from a corrective move in the dollar yesterday. GBP/USD attempted to hit the 1.27 handle, but the momentum has tailed off this morning. Bank of England expectations have been remarkably stable recently, with rates expected to hold steady in December and only move down to the 4.00% mark by the end of 2025. Market-moving UK data does not come until next week, so for now sterling is at the mercy of holiday trading in the US and inflation data in the eurozone.

EUR

The focus for the euro over the next couple of days is on the final round of inflation data ahead of next month’s ECB decision. Schnabel’s outlying call for gradual rate cuts yesterday helped to catapult EUR/USD 0.7% higher and trimmed the implied probability of a 50bp move in December to just 17%, down from 50% earlier in the week. The consensus is for a broad uptick in CPI inflation across the bloc in November, with a drop in energy prices from this time this year set to exaggerate price growth in this month’s headline figure. Spanish CPI accelerated from 1.8% to 2.4% as expected this morning and the German data is expected to rise to 2.6% early this afternoon, ahead of the French and bloc-wide figures tomorrow morning. Policymakers will look through the hotter headline data, and eyes will be on the core inflation measure for the eurozone instead, which is unhelpfully estimated to rise from 2.7% to 2.8%. In other news, there is a growing focus in rates markets on French debt sustainability, where yields have risen to match those of Greece for the first time. The budget vote comes next week, and Le Pen has described the current proposal as ‘bad, unjust and violent’, owing to the €60bn in savings that Barnier is looking for.

Markets

US stocks suffered yesterday in the final full trading day of November ahead of the Thanksgiving holiday – the S&P 500 dropped 0.4% and the Nasdaq fell 0.9%. The market is shut today, and liquidity will be thin in a shortened day tomorrow. In Europe, the Stoxx 50 slipped another 0.6%.

Main Economic Events (All Times CET)

9:00am: Spanish CPI
11:00am: Eurozone Consumer Confidence
2:00pm: German CPI

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