US
Risk appetite is recovering. Brent crude oil price slipped towards its 200-day moving average at $93.85 a barrel as President Donald Trump downplayed the likelihood of renewed military strikes on Iran. Asian stocks rebounded from last week’s AI-driven sell-off as dip-buyers stepped in. Taiwan led the relief rally, underpinned by the government activation of its market stabilization fund on Friday. Still, concerns over AI profitability remain unresolved.
USD pared back some of Friday’s strong October non-farm payrolls gains. Going forward, robust US economic activity, favorable labor market conditions and sticky underlying inflation back the Fed’s hawkish bias, keeping rate differentials supportive of USD
KRW is outperforming across the board on Korean exporters’ dollar selling. NZD tops the G10 FX leaderboard. New Zealand’s preliminary election result reduces the risk the RBNZ returns to a dual inflation-employment mandate which could have tilted policy in a more dovish direction given weak labor market condition.
New Zealand's ruling center-right coalition holds a one seat majority following Sunday’s election, with final results due November 27. The incumbent coalition led by the National Party wants to stick to the RBNZ’s sole price stability mandate which has been in place since December 2023. The Labour Party, meanwhile, ran on a proposal to return to a dual inflation-employment mandate.
The October New York Fed consumer survey is today’s data highlight (4:00pm London, 11:00am New York). But this week’s US October CPI (Tuesday) and PPI (Friday) prints will be the main drivers of Fed funds rate expectations. Fed funds futures imply 80% odds of a 25bps hike at the next December 9 policy decision.
EUROZONE
EUR/USD recovered towards resistance at 1.1200 after testing an intra-day low around 1.1130 on Friday. Lower crude oil prices ease the energy drag on Eurozone growth and offers EUR support. However, France’s ongoing fiscal troubles can still drive EUR/USD down to 1.1000.
Both contenders for the ECB presidency struck a pragmatic tone in newspaper interviews. Netherlands’ Klaas Knot noted that further tightening should be limited if energy prices remained roughly where they were, while signaling readiness to tackle disorderly bond market moves. Spain’s Pablo Hernandez de Cos stressed the “need to remain vigilant about inflation risks” but noted that second-round effects have yet to emerge.
EU leaders meet on November 26-27 to discuss the ECB presidency and two other senior vacancies. Executive Board member Isabel Schnabel leaves January 3, while chief economist Philipe Lane’s term ends May 31. Leaders are likely to seek a package deal covering all three appointments by the December 17-18 summit.
CHINA
USD/CNH is holding just above last week’s multi-year low near 6.6425. China October CPI undershot consensus but PPI surprised to the upside. Headline CPI printed at 0.7% y/y (consensus: 0.8%) vs. 0.9% in September, driven by a deeper decline in food prices. Core CPI was 0.8% y/y (consensus: 0.9%) vs. 1.0% in September, while PPI inflation quickened to near a four-year high at 5.7% y/y (consensus: 5.3%) vs. 5.0% in September.
Subdued CPI relative to PPI inflation indicate firms have limited pricing power to pass higher costs onto consumers, squeezing profit margins, and underscoring still soft domestic demand. In our view, a continued appreciation in China’s currency can help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.
