US

USD retraced some of yesterday’s losses and stock markets stabilized after selling off yesterday. USD will struggle to gain more upside traction as it’s trading above the level implied by US-G6 2-year bond yield spreads.

The November University of Michigan sentiment index is up next (3:00pm London, 10:00am New York). Headline is expected at 53.0 vs. 53.6 in October, well below the long run average at 84.4. Watch the measures of inflation expectations to confirm that price pressures remain contained.

An hour later, the New York Fed releases its survey of consumer expectations. Pay attention to see if there’s a further increase in the mean perceived probability of losing one’s job in the next twelve months. The latest data points to a higher unemployment rate.

US liquidity conditions are back to normal after seizing up briefly late last month. The spread between the tri-party general collateral rate (TGCR) and interest rate on reserve balances (IORB) has tightened back to nearly 0bps after overshooting to +25bps on October 31. In normal conditions, TGCR should be close to or slightly below IORB on average over time.

Upward pressure on funding rates in recent months reflects temporary factors related in part to fiscal flows and the US Treasury’s growing cash balance at the New York Fed (TGA balance) due to the government shutdown. My colleague Jorge Aseff, Portfolio Manager Inflation-Indexed Fixed Income, points out that while we can see further brief jumps in the funding market in the near term, the situation is not alarming.

We agree. First, the Fed will end the reduction of its aggregate securities holdings (quantitative tightening) on December 1, ensuring that reserves remain ample. Second, the Fed has established strong tools (the discount window and Standing Repo Facility) to put a ceiling on money market rates and to provide additional liquidity if needed.

The “growing chorus” of Fed officials supporting skipping a cut were vocal yesterday. Both St. Louis Fed President Alberto Musalem (FOMC voter) and Cleveland Fed President Beth Hammack (2026 FOMC voters) stressed the importance of leaning against above-target inflation. In parallel, Chicago Fed President Austan Goolsbee (FOMC voter) argued to “be a little careful and slow down” easing amid the lack of inflation data during the government shutdown.

Today, Fed Vice Chair Philip Jefferson speaks on AI and the economy (12:00pm London, 7:00am Nedw York) and Fed Governor Stephen Miran speaks on stablecoins and monetary policy (8:00pm London, 3:00pm New York).

CANADA

USD/CAD is consolidating near multi-month highs just above 1.4100. Canada’s October labor force survey is the focus (1:30pm London, 8:30am New York). The data will challenge the Bank of Canada’s (BOC) guidance that it might be done easing after cutting the policy rate 25bps to 2.25% last week.

The economy is expected to lose -5k jobs in October after strong gains of 60.4k in September and the unemployment rate is projected to remain at a four-year high of 7.1% for a third straight month. The BOC’s Q3 business outlook survey indicates subdued hiring intentions over the next 12 months.

We doubt the BOC slashes the policy rate below the lower end of its estimated neutral range of 2.25% to 3.25%, which limits CAD downside. Canada’s government turned on the fiscal tap to fund an increase in capital investment, and underlying inflation is running hot. The swaps market is pricing 44% odds of a 25bps cut over the next twelve months and rate hikes in the next two years.

UK

GBP/USD is down under 1.3100 after recovering to a high around 1.3140 overnight. The Bank of England (BOE) delivered a dovish hold yesterday. The BOE left the policy rate at 4.00% (70% priced-in) and signaled the bar is low to resume easing at the next December meeting.

First, the Monetary Policy Committee (MPC) voted by a slim majority of 5–4 to maintain Bank Rate at 4.00%. Four members (Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor) voted to reduce the Bank Rate by 25bps to 3.75% vs. two members (Taylor and Dhingra) at the September meeting.

Second, the BOE stressed that “CPI inflation is judged to have peaked.” In fact, the BOE now sees the risks to the inflation outlook as more balanced versus skewed to the upside previously.

Third, the BOE removed the word “careful” from its easing bias, suggesting more readiness to cut rates. The BOE stressed “if progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.” Previously, the guidance was for “a gradual and careful approach” to further rate cuts.

Bottom line: the BOE is on track to resume lowering rates at its next December 18 meeting (70% priced-in), after the UK Budget is released on November 26. The expected fiscal drag from the upcoming UK budget will likely leave room for the BOE to deliver more easing than is currently priced-in (50bps in the next 12 months). As such, we expect GBP to keep underperforming on the crosses.

BOE Chief Economist Huw Pill speaks today (3:15pm London, 10:15am New York). Pill was one of the 5 policymakers that voted to maintain the Bank Rate at 4.00% yesterday, arguing that structural changes in price and wage-setting behaviour have generated stronger intrinsic inflation persistence in the UK.

CHINA

USD/CNH is trading near the middle of a two-month 7.0900-7.1500 range. China’s October trade data continues to point at weak domestic demand activity and decoupling with the US. In the twelve months to October, China’s trade surplus totaled $1168bn, down slightly from September’s record high of $1173bn, while the trade surplus with the US narrowed to near a five-year low at $448bn.

In October, both exports and imports fell short of expectations. Exports unexpectedly fell -1.1% y/y (consensus: 2.9%) vs. 8.3% in September and imports rose 1.0% y/y (consensus: 2.7%) vs. 7.4% in September. Softer import growth underscores persistently weak domestic demand. In our view, a gradual revaluation of China’s currency could help China stimulate consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH has room to break lower.