FX Update: FOMC highlights last real week of trading for 2024

Four central bank meetings over the past week: ECB was the least dovish
A brief recap of this week’s central bank meetings:

• RBA: The Bank noted increasing confidence that inflation is moving toward the target, which allowed the market to bring odds of a first rate cut in 2024, although the strong jobs reports Thursday has unwound all of this dovish shift.
• Bank of Canada: Cut 50 basis points as the majority expected in the wake of the weak November jobs report from the previous Friday. CAD tried to rally on the clear indication that the bank doesn’t want to continue in 50-basis point increments from here, recognizing the huge uncertainties of the incoming Trump administration south of the border and what this might mean for the Canadian economy. USDCAD looks very stretched.
• SNB: Surprised most, but not everyone with a larger 50-basis point move. The move was clearly aimed at EURCHF, which was trading at long term low of the range than any concerns about the domestic economy. Side-by-side with the decision was President Schlegel’s expressed willingness to intervene in the foreign exchange market “as necessary”.
• ECB: The market went into the ECB meeting with strong consensus for a 25-basis point cut and that’s what was delivered, together with guidance from Lagarde that failed to pile additional pressure on EU rates to fall any further. As of this writing, 2-year rates had rebounded 12 basis points from the lows pre-meeting. This means that any further pressure on the euro will likely have to come from other factors for now (spike in US yields, etc.) as just about everything has been thrown at the euro at this point.

Top highlights for the week ahead: (times are GMT where shown):
While the FOMC is of course the highlight of the week, in an the new era of increasing fiscal dominance in which the Trump 2.0 administration will be setting the agenda from January 20, how much will FOMC meetings matter as the central bank loses its ability to set the agenda.

• China Nov. Industrial Production and Retail Sales (Mon 0200) – Surprises to the downside would likely raise the anticipation of new stimulus measures.
• Eurozone flash December PMI (Mon: France 0815, Germany 0830, Eurozone 0900) The Manufacturing numbers have been sideways at weak levels – a bit more interest in whether the Services readings continue their deterioration.
• US Empire Manufacturing (Mon 1330) The November reading was incredibly strong at 31.2 after -11.0 the prior month – mean reversion a safe bet?
• UK Oct. Earnings, Employment Change and Unemployment Rate, Nov. Jobless Claims Change and Payrolls (Tue 0700) – important ahead of the Bank of England meeting Thursday and the after sterling reversed its rally versus the Euro.
• Germany Dec. IFO (Tue 0900) The “current assessment” portion has continued to decline while the Expectations has been steady for several months.
• Germany Dec. ZEW Survey (Tue 1000). The Present Situation component here almost at all-time lows, only worse in pandemic spring of 2020 and in 2009 briefly. The Expectations component is mid-range of last several years.
• Canada Nov. CPI (Tue 1330). The Trimmed mean core ticked up unexpectedly to 2.6% vs. 2.4% prior in October – this time expected 2.5%. Headline expected to drop back to 1.9% YoY vs. 2.0% in October.
• US Nov. Retail Sales (Tue 1330) Lots of talk of a tapped out consumer that is bargain-hunting of late. The October data was weak.
• US Dec. NAHB Housing Market Index (Tue 1500)
• UK Nov. CPI (Wed 0700) The core inflation reading expected to tick up to 3.7% from 3.3% the month prior and services inflation was still 5.0% in October – expected 5.1% in Nov.
• US Nov. Housing Starts and Building Permits (Wed 1330)
• FOMC (Wed 1900) – Strong expectations for a 25-basis point cut with less forward guidance on the pace of additional cuts for obvious reasons, given all of the questions surrounding the incoming Trump administration policy. This is a quarterly meeting with the fresh set of staff projections – the Fed’s useless forecast more useless than ever given potential for large fiscal policy and Trump executive policy impacts next year, but still the market will try to parse through the Fed’s thinking and how far it has moved the dot plot of Fed policy forecasts after rate projections for next year have shifted 100 basis points higher since the September FOMC dot-plot. Hard to pre-conceive a takeaway that will be worth any durable reaction.
• Bank of Japan (Thu during Asian session) – Supposedly a minority believing that a hike is possible, but story this week citing BoJ sources suggest no hurry to hike until January – could that be a delaying tactic to have a look at very beginnings of Trump 2.0 before making a decision to move the policy rate again?
• Sweden Riksbank policy meeting (Thu 0830) – After the prior jumbo 50-bp cut, the market is looking for a 25-basis point easing move and a couple more of similar size over the next few meetings, which would take the policy rate to 2.00% for an economy with low inflation and weak demand and leveraged to the economic outlook for Europe.
• Norway Norges Bank meeting (Thu 0900). Norges Bank keeping it sticky at the elevated 4.50% level even as inflation has come down sharply, if still a bit too high at the core at 3.00% in November. Becoming a bit of a carry trade, the NOK: for example CHFNOK.
• UK Bank of England meeting. (Thu 1200) The Bank of England needing to hold the line at what will be G10 highest of 4.75% at these levels of inflation (some interesting data up to the meeting possibly shifting the guidance potential). February cut odds at 75-80% on the Friday before the meeting.
• US Weekly Initial Jobless Claims (Thu 1330)
• Mexico Central Bank policy rate (Thu 1900) – another cautious 25-bp rate cut expected as Mexico braces for new Trump era. MXN has steadied.
• Japan Nov. National CPI (Thu 2330) Come the day after the BoJ, pointing to ongoing scale of pressure for the BoJ to continue hiking next year.
• UK Nov. Retail Sales (Fri 0700)
• US Nov. PCE Inflation (Fri 1330) – the core was 2.8% YoY in October, expected to rise to 2.9% for Nov.
• US Dec. Final University of Michigan Sentiment (Fri 1500) – some clear election impact evidence in the flash December number for this survey. Also interesting to note that general sentiment toward Trump is rising as he posts his lowest unfavorability readings in years.

Table: FX Board of G10 and CNH trend evolution and strength.

Note: the FX Board trend indicators are only on a relative scale and are volatility adjusted. Readings below an absolute value of 2 are fairly weak, while a reading above 3 is quite strong and above 6 very strong.

The strong US dollar sticks out on the positive side, with the gold strength looking less impressive after a chunky reversal after gold poked above 2,700 on Wednesday. On the weak side, the Antipodeans (AUD and NZD) suffering the most, perhaps on the ongoing wait for China’s stimulus plans.

Table: FX Board Trend Scoreboard for individual pairs.
JPY volatility remains, with more as USD trend stays relatively entrenched for now. EURGBP saw a notable backup late in the week that could threaten its down-trending status, given it unfolded sharply just after the pair has posted new cycle lows. AUDNZD trying to flip back to positive, but needs more to emerge from the shadows of the sharp sell-off from 1.1150+. EURCHF trying to get something going, while silvers upside break attempt was thrown back.