Euro about to mark second weekly loss in row
The euro rose in European trade on Friday against a basket of major rivals, advancing on the dollar for the first session in six and settling above 13-month lows, but the common currency is still heading for the second weekly loss in a row amid rising economic risks for the EU, and the increasing odds of an ECB interest rate cut in December.
Political uncertainty in Germany, and trade concerns after Donald Trump’s US election victory, could prompt the ECB to accelerate the pace of policy easing.
The Price
The EUR/USD pair rose 0.35% today to $1.0565, with a session-low at $1.0523.
The euro closed down 0.3% on Thursday, the fifth loss in a row, plumbing 13-month lows at $1.0496.
Weekly Trades
The euro is down 1.5%% so far against the dollar this week, on track for the second weekly loss in a row.
German Turbulence
German Chancellor Olaf Shultz said he’s ready for a vote on no-confidence before Christmas, which paves the way for early elections after his governing coalition collapsed.
The Greens Party, which was part of the governing coalition, joined the opposition in calling for early elections, expected in February 2025.
Trade Tensions
The Euro is under pressure from US President-elect Donald Trump's vows to impose tariffs on European goods imports, in accordance with his "America First" policy.
This policy of tariffs will no doubt raise pressures on trans-Atlantic relations and could lead to more damaging confrontations.
The euro already lost over 3% of its value against the dollar since Trump’s landslide election victory, on trading for losing trading above $1.06.
European Rates
Recent inflation data showed consumer prices in the eurozone rose more than expected in October.
Following the data, the odds of an ECB 0.25% interest rate cut in December plunged from 85% to 50%.
US Rates
Fed Chair Jerome Powell said on Thursday that there’s no need to accelerate interest rate cuts as the economy and the labor market continue to grow, and inflation remains above 2%.
According to the Fedwatch tool, the odds of a 0.25% Fed rate cut in December tumbled from 83% to 59%.
Now investors await important US retail sales data later today in addition to speeches by some Fed officials, which could provide clues on the future path of monetary policies.
Yen skids to four-month trough as Japanese GDP slows down
The Japanese yen skidded in Asian trade on Friday to four-month lows against the US dollar and sharpened the losses for the fifth straight session, while about to mark the biggest weekly loss in two months after data showed Japan’s GDP slowed down in the third quarter, hurting the odds of a rate hike in December.
The currency is also hurt by a surge in US 10-year treasury yields after bullish remarks from Fed Chair Jerome Powell, which reduced the odds of a 0.25% Fed rate cut in December.
The Price
The USD/JPY rose 0.3% today to 156.74 yen per dollar, the highest since July 23, with a session-low at 156.19.
The yen closed down 0.5% on Thursday against the dollar, the fourth loss in a row on Trump trade momentum.
Weekly Trades
Yen is down 2.75% so far this week against the US dollar, about to mark the biggest weekly loss since late September.
Japanese Economic Slowdown
Official government data showed Japan’s GDP grew 0.2% in the third quarter, slowing down from 0.5% in the second quarter.
Japanese Rates
The data all but ruled out another interest rate hike by the Bank of Japan at the December policy meeting.
The Bank of Japan's latest meeting minutes showed that some members are concerned about uncertainty following the US elections.
At the October 30-31 meeting, the BOJ maintained interest rates unchanged but said that risks from the US economy have shrunk, showing that the conditions are ripe for another rate hike.
However, the doves at the BOJ advised a slower pace in normalizing monetary policies.
US Yields
US 10-year treasury yields rose 0.7% on Friday and traded near 4-⅕ month highs at 4.483%, bolstering the dollar’s standing.
Fed Chair Jerome Powell said on Thursday that there’s no need to accelerate interest rate cuts as the economy and the labor market continue to grow, and inflation remains above 2%.
According to the Fedwatch tool, the odds of a 0.25% Fed rate cut in December tumbled from 83% to 59%.
Now investors await important US retail sales data later today in addition to speeches by some Fed officials, which could provide clues on the future path of monetary policies.
A wider long-term treasury yield gap between Japan and the US would hurt the appeal of Japanese bonds and undermine the yen.