The US dollar looks as if it will post its worst month in a year, with the dollar index set to decline 3.5% in November. Q3 GDP data released yesterday showed a rise of 5.2% annualized QoQ, showing inflation as trending lower with the market also reacting to mixed signals from Fed officials. Atlanta Fed President Raphael Bostic said that he is growing increasingly confident that inflation is firmly on a downward path, however his Richmond colleague Thomas Barkin said that the Fed should keep the option of further interest rate hikes on the table. Cleveland’s Loretta Mester, who’s been calling for higher rates this year, said that policy is well positioned for the central bank to be nimble and respond appropriately to the evolving outlook. A further pause from officials is expected at the December 12-13 meeting, where rate setters will also provide further insight into the potential path of monetary policy throughout 2024.
EURUSD is currently consolidating in the mid 1.09’s after briefly breaching 1.10 earlier this week, as markets await the release of November’s euro area inflation report. Germany and Spain’s CPI’s both came in weaker than expected and markets forecast euro area headline inflation to fall again in November, despite some upward pressure from energy bills. French inflation data was released earlier this morning, falling below consensus to 3.8% and at the same time GDP data showed that the French economy unexpectedly shrank. A 0.1% expansion was forecast, however a contraction of 0.1% was released suggesting that the euro area’s second largest economy is succumbing to a broader slowdown. The single currency dropped on the data release, with swaps traders now fully pricing in a 0.25% ECB rate cut in April next year.
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