EUROPEAN FX UPDATE: Markets digest reports of China allowing a weaker yuan and BoJ sources

USD: DXY +0.2%; 106.62

• The USD was lent a helping hand in early trade following a Reuters sources report that China's top policymakers are considering allowing the Yuan to weaken in 2025 as Trump tariff looms. This sent DXY to a new high for the week @ 106.68, stopping shy of last week's MTD high @ 106.73. Today's sees the release of November CPI data which is expected to see a +0.3% M/M outturn for core CPI. Markets currently price a 25bps cut @ 84%; a hot release could bring expectations of a cut vs. unchanged closer to balance.

EUR: EUR/USD -0.2%; 1.0509

• EUR/USD briefly dipped below 1.05 following a pick-up in the USD after reports of China looking to devalue the yuan next year. EUR/USD went as low as 1.0489 but stopped shy of the December low @ 1.0460. Fresh EUR-specific drivers have been lacking with focus on tomorrow's ECB rate decision with the ECB set to pull the trigger on a 25bps cut. Markets price around 29bps of loosening for the meeting, which implies just a 15% chance of a larger 50bps move. Until then, price action for USD may dictate the direction for the pair.

JPY: USD/JPY +0.4%; 152.62

• JPY was firmer vs. the USD during APAC hours following two consecutive sessions of losses as markets digested above forecast Japanese PPI data. Further support for JPY was also seen in the wake of the Reuters yuan story. JPY gained further ground vs. the USD after a Bloomberg sources piece noted that the BoJ sees little cost in waiting for the next rate hike. This move was then subsequently reversed after markets digested another aspect of the report which noted that the BoJ sees less risk of a softer JPY boosting inflation (i.e less pressure to intervene). This comes ahead of next week's BoJ meeting with markets assigning a 24% probability of a rate hike. USD/JPY is back above its 200DMA @ 152.00 with a session peak @ 152.65.

GBP: GBP/USD -0.2%; 1.2740

• GBP softer vs. the USD with UK catalysts on the light side. Friday's monthly GDP print unlikely to be a gamechanger for the BoE. Note, next week will see things pick-up markedly with UK flash PMIs, jobs, CPI, retail sales data and the BoE policy announcement all due on deck. On the latter, just 2bps of easing is priced in for the meeting. Cable went as high as 1.2781 overnight before returning to within yesterday's 1.2724-1.2778 range. EUR/GBP has made an incremental multi-year low @ 0.8236.

Antipodeans/Yuan: AUD/USD -0.4%; 0.6346. NZD/USD -0.5%; 0.5768. USD/CNH +0.4%; 7.2860

• CNH was knocked lower in early European trade after source reporting via Reuters noted that China's top policymakers are considering allowing the Yuan to weaken in 2025 as Trump tariff looms. This saw USD/CNH spike higher from 7.2508 to 7.2917 and led to a notable decline in AUD with AUD/USD printing a fresh YTD low @ 0.6343. NZD/USD has extended its move below 0.58 and printed a fresh YTD trough @ 0.5765. In a pre-prepared speech, RBA's Hauser noted it will not prejudge the implications of tariff policy but stands ready to respond appropriately.

CAD: U/C; 1.4180

• CAD steady vs. the USD ahead of today's BoC rate decision. The BoC is widely expected to cut rates with the consensus looking for another 50bps reduction, but with a risk of a smaller 25bp move. Markets price 48bps of loosening for the meeting. CAD has continued to soften vs. the USD since last Friday's Canadian jobs data which showed a notable increase in the unemployment rate. USD/CAD is currently tucked within yesterday's 1.4155-95 range, the top end of which is the YTD high.

11 Dec 2024 - 09:55- ForexData- Source: Newsquawk