Dollar Firms With T-Note Yields

The dollar index (DXY00) today is up slightly by +0.05%.  Higher T-note yields today are supportive of the dollar as the 10-year T-note yield rose to a 1.5-week high at 4.11%.  Also, today’s action by the OECD to boost its US 2025 GDP forecast was supportive for the dollar.  Strength in stocks today is limiting gains in the dollar as it reduces liquidity demand for the dollar.

The dollar is being undercut by expectations for a rate cut at next week’s FOMC meeting, as the swaps market now discounts a 96% chance of a rate cut at the Dec 9-10 FOMC meeting.

The Organization for Economic Co-operation and Development (OECD) kept its global 2025 GDP forecast unchanged at +3.2% but raised its US 2025 GDP forecast to +2.0% from a previous estimate of +1.8% and raised its Eurozone 2025 GDP estimate to +1.3% from +1.2%.  The OECD said the global economy is weathering trade tariffs better than expected due to strong investment in artificial intelligence and supportive fiscal and monetary policies.

The markets are discounting a 96% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.

EUR/USD (^EURUSD) today is down by -0.05%.  The euro is slightly lower today due to the strength of the dollar.  However, losses in the euro are limited after the Eurozone’s Nov CPI rose more than expected, a hawkish factor for ECB policy.  The euro also received support today after the OECD raised its estimate of the Eurozone 2025 GDP.  In addition, today’s jump in the 10-year German bund yield to a 2-month high has strengthened the euro’s interest rate differentials.  Finally, divergent central bank policies are supportive of the euro, with the ECB having finished with its rate-cutting cycle while the Fed is expected to keep cutting interest rates.

Eurozone Nov CPI rose +2,2% y/y, stronger than expectations of +2.1% y/y.  Nov core CPI was unchanged from Oct at +2.4% y/y, right on expectations.

Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.

USD/JPY (^USDJPY) today is up by +0.43%.  The yen is under pressure today due to higher T-note yields. However, losses in the yen are limited after the Japan Nov consumer confidence index rose more than expected to a 19-month high.  The yen also has carryover support from Monday when BOJ Governor Ueda signaled the BOJ may raise interest rates at this month’s policy meeting.