Markets showed heightened sensitivity to inflation data on Thursday, with the hotter-than-expected U.S. PPI report further dampening expectations for aggressive Fed easing in 2025.
The Swiss National Bank surprised with a larger-than-expected 0.50% rate cut while the ECB moved with a 0.25% reduction in borrowing costs as anticipated.
Here are the latest updates driving financial market price action:
Headlines:
- Australia posted strong hiring growth in November, jobless rate down to 3.9%
- SNB lowered rates by 0.50% vs. expected 0.25% cut, inflation forecasts downgraded
- ECB cut interest rates by 0.25% as expected but removed hawkish wording in statement
- U.S. headline PPI in Nov: 0.4% m/m (0.2% forecast, 0.3% previous); core PPI at 0.2% m/m (0.2% expected, 0.3% previous)
- U.S. weekly initial jobless claims for week ending Dec 5: 242K (221K forecast, 225K previous)
- IEA expects comfortably supplied oil market in 2025 despite demand hike
- New Zealand BusinessNZ manufacturing index in Nov: 45.5 (45.7 previous)
- New Zealand visitor arrivals up 0.6% m/m in October
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Market participants seemed to be on edge ahead of key central bank decisions and U.S. inflation data, as majority of asset classes moved sideways during the Asian and London sessions.
U.S. Treasury yields were cruising higher, however, possibly still enjoying some of the upside momentum from the previous session. Crude oil prices also remained elevated due to geopolitical tensions related to Russian sanctions and in the Middle East, but the energy commodity gave up plenty of ground upon seeing upbeat U.S. PPI figures.
As it turned out, stronger headline producer prices further dampened Fed easing expectations for next year, also weighing on gold prices while USD flows picked up. This also caused Treasury yields to climb, with the US10Y up 1.57% by day’s end.
Meanwhile, U.S. equity indices pulled back from recent record highs, with the S&P 500 closing down 0.44% as markets repriced their Fed rate cut expectations.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar saw a bit of red against its peers during the Asian session, chalking up additional losses versus the Aussie and Kiwi after Australia printed a strong jobs report.
The Japanese yen also saw a bit of strength early in the day, likely driven by BOJ December hike hopes, although the safe-haven currency returned these winnings before London markets opened. USD/CHF staged a steep rally during the SNB decision, as the central bank surprised with a larger 0.50% rate cut, while the U.S. cruised higher across the board when risk-off flows picked up.
EUR/USD had a short-lived reaction to the ECB decision to cut rates by 0.25% as expected likely because the central bank gave mixed signals by removing hawkish wording in their statement while giving a more optimistic growth outlook.
The Greenback extended its climb upon seeing hotter-than-expected U.S. headline PPI, as strong underlying inflation weighed on Fed rate cut expectations for 2025, allowing the currency to end in the green across the board.
By the end of the session, USD chalked up its largest lead versus CHF (0.84%), followed by GBP (0.54%) while AUD proved resilient in trimming its losses (0.13%) to the U.S. currency.
Upcoming Potential Catalysts on the Economic Calendar:
- German trade balance at 7:00 am GMT
- U.K. GDP and industrial production at 7:00 am GMT
- French final CPI at 7:45 am GMT
- U.S. industrial production at 10:00 am GMT
- Canada’s manufacturing sales at 1:30 pm GMT
- U.S. import prices at 1:30 pm GMT
There’s not much in the way in terms of top-tier market catalysts for today, although the British pound could see some volatility around the U.K. GDP release while mid-tier U.S. data (industrial production and import prices) could still impact Fed policy expectations and therefore overall market sentiment.
As always, our Currency Correlation Calculator can help you identify related currency moves during these events!