Overview: The US dollar is trading with a heavier bias today. Equities and bonds have also been sold on the first day of the new month. The dollar bloc and the sterling are laggards today, while the yen has been squeezed higher amid heightened speculation that the Bank of Japan will lift rates later this month. The recovery of the yen does not appear to be spurring an unwinding of carry trades, but the substitution of the yen's funding role with the Swiss franc and/or US dollar. Most emerging market currencies are also firmer but for a few Asian currencies (Taiwan, South Korea, India) and the Russian ruble.
Rising rates and a stronger yen pushed Japanese equity indices down more than 1% today. Taiwan's Taiex also lost 1%. Despite disappointing PMI data, China's mainland markets and shares that trade in Hong Kong rallied, with the CSI 300 up a little more than 1%. Europe's Stoxx 600, which rallied every session last week, is nursing a loss (~0.35) that is unwinding the gains of the past two sessions. The S&P and Nasdaq futures are off 0.55%-0.65%. Bond markets have found no comfort in the equity market losses. European 10-year benchmark yields are up 3-4 bp, while the 10-year US Treasury yield, which slipped below 4% last week, is up three basis points to poke above 4.04%. Gold (and silver) are extending last week's gains. The yellow metal pushed above November's high (November 13, ~$4245) but has retreated after reaching almost $4262.50. January WTI, which traded to almost $57 in the middle of last week, has approached a six-day high near $60 following OPEC+ confirmation that it will pause its increase in output in Q1 26.
USD: The Dollar Index fell every day last week for the first time since April and is trading with a heavier bias today. It has taken out last week's lows (~99.35), and the next support is seen near the November low, slightly below 99.00. The (38.2%) retracement of the gains since the low of the year set September 17 (~96.20) is near 98.80. The US sees the final manufacturing PMI and the ISM manufacturing survey today. The PMI has been consistently stronger than the ISM. The PMI has been above 50 all year but for the dip in July. The preliminary estimate slipped to 51.9 in November from 52.5 in October. By contrast, the ISM has been below 50 since November, except for January and February this year. It stood at 48.7 in October (49.1 in September) and may have recovered slightly in November. The Federal Reserve entered the quiet period ahead of the December 10 FOMC meeting. The Fed funds futures market is pricing in a nearly 80% chance of a cut next month coming into this week.
EURO: The euro gained on the dollar every session last week and the week before it fell in each session. It has extended last week's rally to almost $1.1630, so far today. Still, to make the upside more compelling, it must overcome last month's high (~$1.1655). The two-year interest rate differential between the US and German is languishing near the year's low, slightly below 145 bp. Some euro buying may be related to the large options at $1.16 set to expire today and Thursday (for a combined 3.22 bln euros). The large EMU members reported their November CPI before the weekend, but before the aggregate estimate is reported tomorrow, the eurozone saw the final manufacturing PMI. Recall that it reached 50 in October for the first time since Russia's invasion of Ukraine. It pulled back to 46.6 (49.7 initially) in November. Germany's stands at 482 (48.4 preliminary estimate), the lowest since February. The French reading was unchanged at 47.8 from the preliminary estimate, a low since February. Italy's jumped to 50.6 (49.9 in October), the highest since March 2023. and Spain's, which has been above 50 since May stands 51.5 (52.1 in October). Turning to tomorrow's CPI, the median forecast in Bloomberg's survey is for a 0.3% decline, which, given the base effect, will leave the headline rate on a year-over-year basis steady at 2.1%.
CNY: The yuan rose to new highs for the year last week and its advance does not appear over. There continues to be speculation that officials will allow the US dollar to gradually move toward CNY7.0. The dollar slipped slightly below CNH7.0650 today. Last year's low against the offshore yuan was near CNH6.97, while the dollar bottomed near CNY7.0065. The PBOC set the dollar's reference rate at CNY7.0759, a new low for the year (CNY7.0789 before the weekend and CNY7.0847 a week ago). China reported its "official" November PMI over the weekend. The manufacturing PMI, which has not been above 50 since March, rose to 49.2 from 49.0. The non-manufacturing PMI slipped below 50 (to 49.5) for the first time since the end of 2022. The composite (output) has been bumping along 50 since the end of Q1 and slipped to 49.7 in November, the first sub-50 reading since December 2022. The RatingDog (previously Caixin) manufacturing PMI was reported, as well. It slipped from 50.6 to 49.9.
JPY: There has been a roughly 15 bp pullback in the US 10-year yield over the past two weeks and the swaps market perception of a greater chance of a BOJ hike next month (from less than 25% a week ago to a little above 80% now), while expectations for a Fed cut remain just as high. This coupled with Bank of Japan Governor Ueda's clearest statement of the possibility of a rate hike earlier today has sent the yen to near a two-week high. The dollar has frayed the 20-day moving average (~JPY155.25) for the first time since mid-October. It has extended last week's losses (~JPY155.65) to almost JPY155.15 today. Options for about $745 mln are struck at JPY155 expire today. The next target is the JPY154.65 area, which corresponds to the (38.2%) retracement of the rally since the mid-October low and the last time it traded below JPY150. Despite the weaker Q3 capex the Q3 capex figures, which points to the risk that the contraction in Q3 will be revised lower when the GDP figures are revised next week, Japanese government bonds were sold. The 10-year bond yield rose slightly more than five basis points while the 30-year and 40-year yields rose 3-4 bp. For the record, capex slowed to 2.9% year-over-year in Q3 (7.6% in Q2 include software and 5.2% without). 5.6% year-over-year from 7.6% in Q2. There was not much interest in the final November manufacturing PMI (48.7 vs. 48.8 preliminary estimate and 48.2 in October, which is the lowest for the year). It has been below 50 since mid-2024 except for the pop to 50.1 in June.
GBP: Sterling reached almost $1.3270, a new high for November, as the budget was greeted favorably by market participants, though now Prime Minister Starmer and Chancellor Reeves are being accused of deceiving Parliament and the public by painting a more dire picture before the budget announcement. On an intraday basis, sterling met the (50%) retracement objective of the decline since the October high (~$1.3470), found near $1.3240. In consolidated on Friday and remained above $1.3200, where chunky options expired. It is consolidating in about a half-cent range above $1.32 today. While sterling may have forged a double bottom in November that projects into the $1.3430-50 area, let's take it one step at a time. The next immediate technical hurdle is in the $1.3285-$1.3310 area, which holds the past congestions, the 200-day moving average, and the (38.2%) retracement of sterling's sell-off since the $1.3725 peak on September 17 (Fed Day). The UK reported (a little softer) consumer credit and mortgage data, which does not typically more than markets. The same goes for the final manufacturing PMI. Recall that preliminary reading put it above 50 (50.2) for the first time since September 2024. The final reading today confirmed it.
CAD: Following a stronger than expected Q3 GDP, the Canadian dollar rallied to new highs for the month ahead weekend. The greenback was sold through the previous low (~CAD1.3970) and fell to about CAD1.3940. There seems little on the charts ahead the CAD1.3900 area, which holds the 200-day moving average and the (38.2%) retracement of the rally here in H2 25. The October low was slightly below CAD1.3890. The CAD1.3970 area may be the neckline of a bearish double top (~CAD1.4130-40) pattern that projects toward CAD1.3800. Note that the CAD1.3840 area is the (50%) retracement objective of the US dollar rally in H2 and the (61.8%) retracement is around CAD1.3770. That said, the greenback is consolidating between CAD1.3965 and about CAD1.3900 today as the risk-off mood tempers enthusiasm. There are about $1.1 bln in options that expire today between CAD1.4025-CAD1.4030 and another $640 mln at CAD!.4050.
AUD: The Australian dollar recovered in North American ahead of the weekend and managed to extend its rally for the sixth consecutive session. Last week's 1.4% gain was the largest weekly advance since April. It rose above $0.6550 for the first time in a couple of weeks. It pulled back initially to about $0.6530 today but is knocking on the pre-weekend high. The (50%) retracement of the Australian dollar's losses from the year's high on September 17 (~$0.6705) is near $0.6565 and the (61.8%) retracement is almost $0.6600. The November high was around $0.6580. Australia is one of the few G10 countries that has not reported Q3 GDP, but it will Wednesday. Bloomberg has two surveys. Its median forecast in its monthly survey is for a 0.5% expansion after 0.3% in Q1 and 0.6% in Q2. The median forecast in its weekly survey is 0.7%. The November manufacturing PMI was confirmed at 51.6 earlier today (49.7 in October), while November house prices (Cotality) rose 1.0% to bring the year-over-year gain to about 6.6%. The Melbourne Institute's November inflation expectation survey ticked up to 3.2%. There is virtually no question but that the central bank will stand pat when it meets later this month.
MXN: The dollar stalled around MXN18.53 in the last two weeks. The US dollar's broad softness last week, the increased speculation of a Fed cut next month, which would seem to give Banxico more room to maneuver after cutting this year's growth forecast in half in last week's quarterly inflation report, and the risk-on mood reflected in equity market rally, saw the greenback trade to almost MXN18.29 ahead of the weekend. The dollar's losses have been extended to almost MXN18.2750 today. The November low was around MXN18.2530 and the low for year, recorded on September 17, was near MXN18.20. Mexico sees the November manufacturing PMI today and the IMEF surveys (similar in nature) and October worker remittance. Remittances are the more important source of hard currency inflows into Mexico. Through September, they have totaled $45.7 bln. This pace is the slowest since 2022 (in Jan-Sept 2024, remittances were$48.4 and in the same period in 2023 they were $47.1 bln). In this context, note that Mexico recorded almost a $3 bln trade deficit in the first nine months of 2025.
Reviewed by Marc Chandler
on
December 01, 2025
Rating:
