The dollar index (DXY00) on Monday fell by -0.03%. The dollar posted modest losses on Monday and came under pressure on dovish comments from Fed Governor Christopher Waller, who said he’s advocating a December rate cut by the Fed. Mr. Waller’s comments pushed the chance of a Fed rate cut next month to 80% from 30% last Thursday. Also, Monday’s stock rally reduced liquidity demand for the dollar. Weakness in the yen was supportive for the dollar today, as the yen attempts to hold above last Friday’s 10-month low.
Fed Governor Christopher Waller said he’s advocating for a December rate cut by the Fed due to concerns about the labor market and then taking a meeting-by-meeting approach starting in January.
The markets are discounting an 80% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
EUR/USD (^EURUSD) on Monday rose by +0.12%. The euro moved higher on Monday due to dollar weakness. Also, improved prospects for an end to the war in Ukraine boosted the euro after NATO Secretary General Rutte said he’s sure a peace deal to end the war in Ukraine will get done, as Russia is “not in good place” after failing to make significant progress on the battlefield and losing 20,000 troops a month. Limiting gains in the euro was the unexpected decline in the German Nov IFO business confidence.
The German Nov IFO business climate unexpectedly fell -0.4 to 88.1, weaker than expectations of an increase to 88.5.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Monday rose by +0.26%. The yen was under pressure on Monday on concerns about Japan’s debt burden. The yen is just above last Friday’s 10-month low against the dollar after the Japanese government last Friday approved a 17.7 trillion-yen ($112 billion) stimulus package, higher than the 13.9 trillion-yen package released last year by former Prime Minister Ishiba. The yen recovered from its worst level on Monday after T-note yields declined. Trading activity in the yen was below normal as Japanese markets were closed on Monday for the Labor Thanksgiving Day holiday.
The markets are discounting a 16% chance of a BOJ rate hike at the next policy meeting on December 19.
