12 Dec 2024

The US Dollar (USD) continues to exhibit strong support this December as trading partners rapidly implement interest rate reductions. Today, the focus will primarily be on Europe, while in the United States, attention will be directed towards the Producer Price Index (PPI) data for November, as noted by ING’s FX analyst Chris Turner.

There is a potential for the DXY to approach the 107 mark.

“Canada has recently executed consecutive 50 basis point rate cuts, and it is anticipated that central banks in Europe may follow suit with similar reductions today. Concurrently, various reports from Japan indicate that the Bank of Japan is unlikely to raise rates next week, which is contributing to the rise of USD/JPY towards the 153 level. Additionally, the dollar received a boost yesterday morning from reports suggesting that China is contemplating a more lenient approach to its renminbi.”

The recent Consumer Price Index (CPI) data from the United States did not present any significant surprises, leading the market to solidify its expectation that the Federal Reserve will implement a 25 basis point cut next week. This action is anticipated to be viewed as the Fed seizing the opportunity to adopt a less restrictive monetary policy while conditions permit. Today, the focus will shift to Europe; however, in the United States, attention will be directed towards the Producer Price Index (PPI) for November. Any unexpected increase in this figure, along with its implications for the upcoming core Personal Consumption Expenditures (PCE) deflator release next Friday, could provide a slight boost to the dollar.

There appears to be no justification for departing from the safety, liquidity, and attractive yield offered by the dollar, with one-week deposit rates currently at 4.55% per annum. Should the European Central Bank (ECB) adopt a sufficiently dovish stance today, the DXY may be poised for a movement towards 107.