The US dollar weaker vs most currency pairs ahead of US data due out this morning. FX volumes and liquidity is increasingly thin ahead of the Christmas holiday, which may have exacerbated the move. US equity futures are lower ahead of the data releases and US yields are lower, while oil rose and is on set for its biggest weekly advance in two months.

Today, we have lots of data out of the US, including personal income, personal spending, PCE data, durable goods orders, new home sales, and the University of Michigan consumer sentiment survey. Markets seem to be pricing in the fact that the Federal Reserve will pivot to cutting interest rates next year. Markets are currently pricing in 158bps of rate cuts from the Fed in 2024.

EUR rose to a four-month high vs the USD on growing expectations that US interest rates will fall in the new year. In December alone, the euro has moved 1.2% higher vs the USD, with the primary gains coming after the Fed noted a pivot to interest-rate cuts that weakened the USD. That announcement contrasted with ECB when they cautioned investors against betting on imminent rate cuts. The market is now pricing 162 bpts of cuts from the ECB by the end of 2024, compared to 100 bpts two weeks ago. In the US, markets pricing in 158 bpts of cuts.

GBP One of the Bank of England’s most hawkish policymakers appeared to signal that he was re-thinking his “higher-for-longer” stance on interest rates after Wednesday’s unexpectedly sharp fall in inflation. Jonathan Haskel, posted on “X” that there was “news” in the latest inflation report. It showed the rise in consumer prices dropping back to 3.9% in November from 4.6% a month earlier, a steeper slide than economists had predicted.

What was significant, was that the fall in services inflation seemed more “broadly based” than in previous months. The Bank of England continues to focus on the services sector for signs that inflationary pressures. Haskel’s comments raise the probability that the BOE will start cutting rates earlier than forecasted. Markets are now almost fully pricing in six quarter-point cuts next year starting in May, following signs that unprecedented rate increases over the past two years are causing the economy to tilt towards recession.

CAD Canadian consumers are forecasted to slow spending in November after splurging in the previous month, as persistently high interest rates restrict household budgets. Receipts for retailers were flat last month (per Statistics Canada). Retailers had a strong month in October with sales up 7 of 9 sectors, mostly led by a 1.1% gain in car parts and dealers. The questions is with the Bank of Canada’s benchmark rate being held at 5%, potentially flat retail growth, lower payroll employment, stagflation may be on the horizon.

MXN Mexico’s consumer prices rose higher than forecasted in early December as holiday spending keeps the pressure on the central bank. Consumer prices rose 4.46% compared to prior month, according to the national statistics report. This was above the 4.36% consensus forecast. This is generally poor news for inflation, and will force the central bank (Banxico) to be very cautious in any rate cuts to insure inflation continues lower.