NZD creeps back toward US$.60 as pressure mounts on USD exceptionalism

Key Movers

The US dollar was among the weaker currencies through trade on Friday, giving up ground to all 10 major counterparts amid an improved risk tone. The dollar index gave up 0.5% as markets priced out a more aggressive path of Fed rate cuts through 2024. With inflation tracking toward target and US macroeconomic data sets suggesting the robust tightening cycle employed by the FOMC is working to control future price pressures analysts have begun pricing an easing in policy conditions through next year. Financial conditions have tightened naturally easing the burden on the Fed to continue hiking rates. While we do anticipate policy makers may issue one final rate hike through Q1 next year the promise of a correction in policy through H2 is beginning to weigh on the Dollar. The DXY index has given up nearly 3% from its October high. With the USD on the back foot, the Euro pushed back above 1.09, while the GBP held onto gains above 1.24 despite a sharp correction in UK retail sales Friday. Consumer spending retreated in October suggesting the Bank of England’s 14 rate hikes are now adding increased pressure on UK households. A string of souring macroeconomic data sets has market pricing an end to the BoE tightening cycle with policy makers expected to begin cutting rates through the second half of next year. Without its yield advantage, the GBP may struggle to maintain upward momentum against key major counterparts. In other news, Japanese Yen has forced the USD back below 150 and was among the best performers Friday.
With little of note on today’s docket, our attentions turn to Tuesday’s FOMC meeting minutes and Canadian inflation data Tuesday for direction through the week.