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AUD/USD faced its steepest weekly decline in four months, closing 1.84% lower at 0.6461, driven by a stronger US dollar following hawkish remarks from Fed Chair Jerome Powell. Meanwhile, Australia's mixed employment data and the RBA's commitment to controlling inflation suggest a delayed rate cut until May 2025. The currency pair is nearing critical support at 0.6360 - 0.6350, with a sustained break potentially leading to further declines towards the October 2022 low of 0.6170.
The British pound is experiencing its largest weekly decline since January, dropping 2% as the strong US economy outpaces the UK's sluggish performance. Recent data revealed an unexpected contraction in the UK, while the US dollar reaches a yearly high, driven by confidence in US policies.This currency shift highlights the stark contrast between the two economies, with the pound now down 0.4% for the year. As the Bank of England may cut rates to stimulate growth, the Federal Reserve's rates are expected to stabilize around 3.84%, influencing global trade and investor sentiment.
The US dollar has strengthened significantly, climbing 6% since early October, driven by expectations of favorable policies under President Trump's second term. However, there are indications that the dollar may be overshooting its value, with forecasts suggesting a potential decline against the euro and other currencies as economic fundamentals shift. Investors are advised to consider reducing dollar exposure and exploring alternative currency strategies as the market adjusts.
The Asian markets are poised for a mixed opening, with the Nikkei up 0.98% and KOSPI down 0.48%, influenced by a less dovish stance from the Federal Reserve. Economic data from China, including retail sales and industrial production, is anticipated to show improvement, potentially boosting market sentiment. The Nikkei 225 remains within a rising wedge pattern, with key support at 38,320 and resistance levels at 40,200 and 41,000.
Bitcoin briefly surged past $93,000, reaching a peak of $93,462, driven by expectations of interest-rate cuts from the Federal Reserve and President-elect Donald Trump's supportive stance on cryptocurrencies. However, the digital asset could not maintain its momentum, retreating to $89,370 as of 6:10 a.m. Thursday in Singapore. The broader cryptocurrency market experienced volatility, fluctuating between gains and losses amid erratic trading conditions.
Traders increased their bets on a quarter-point interest rate cut by the Federal Reserve in December following inflation data that met expectations. This optimism led to a rally in Treasuries, with two-year note yields dropping by 7 basis points to 4.27%, while ten-year yields fell by 4 basis points to 4.39%.
Mortgage demand has stalled as rates hit their highest since July, with a slight overall application volume increase of 0.5%. The average rate for 30-year fixed mortgages rose to 6.86%, influenced by higher Treasury yields amid uncertainties surrounding the Trump presidency. While refinancing applications fell 2%, purchase mortgage applications increased by 2%, supported by FHA and VA loans.
Senator Elizabeth Warren of Massachusetts is poised to become the leading Democrat on the Banking Committee, a significant role for a vocal critic of Federal Reserve Chair Jerome Powell and major financial institutions. Warren emphasized the need for Democratic leadership to prioritize affordability for working families and to urgently work towards revitalizing the middle class following the 2024 election.
Yen-hedged Treasury yields are poised to turn positive for the first time in two years, driven by Donald Trump’s election victory, which has led to rising US rates and reduced hedging costs. As of Tuesday, US 10-year yields stood at minus 13 basis points after accounting for the cost of protecting against a potential dollar decline against the yen. This marks a shift from negative yields that have persisted since September 2022, attributed to the Federal Reserve's interest-rate hikes increasing the cost of shorting the dollar.
Treasury yields increased as investors anticipated key consumer price data, which may impact confidence in potential Federal Reserve interest-rate cuts next year. Two-year yields hit their highest level since July, while longer-term yields rose by at least 10 basis points, reflecting a shift in market sentiment.
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