Asian stocks subdued, dollar drifts ahead of US Thanksgiving

British Pound

Reuters: Sterling rose against the dollar and was little changed versus the euro on Wednesday, with investors focused on the market reaction to U.S. President-elect Donald Trump's tariff promises. Markets will closely watch the U.S. economic data later in the day, which could affect the Federal Reserve's easing path. The greenback fell to a one-week low as investors grew cautious about Trump's tariff pledges while rebalancing their portfolios before the end of the month. The pound rose 0.3% to $1.2612. It hit $1.2484 last week, its lowest level since May 9.

Analysts flagged that expectations for a hawkish stance by the Bank of England and possible U.S. tariffs against the euro area will be supporting the pound versus the single currency. However, if the trade conflict escalates, there are risks for the British currency as the global economy will slow down. The BoE's Clare Lombardelli said on Wednesday that Trump's proposed tariffs would also pose a risk to growth in the UK. Sterling was flat versus the single currency at 83.41 pence per euro.

"With one-week deposit rates at 4.75%, the highest in the G10 space, sterling may be deriving inflows as the market makes up its mind about the speed and magnitude of Trump's policy agenda," said Chris Turner, head of forex strategy at ING. The BoE's Lombardelli made the case for only gradual reductions in interest rates on Monday. "On the UK, we fundamentally remain convinced that the UK economy would have difficulty supporting the terminal rates as currently priced by the market, like the euro zone, as both are faced with similar structural weakness and low growth," U.S. asset manager Candriam said in a note. Money markets priced in a BoE rate at around 4% by end 2025, while discounting an ECB deposit facility rate below 1.8% from the current 3.25%.

US Dollar

Reuters: The dollar fell broadly on Wednesday in thin pre-holiday trade, digesting a slew of indicators that underscored U.S. economic resilience while investors assessed the risk that President-elect Donald Trump will start a tariff war no one will win. The decline further unwound the dollar's recent rally. Few traders were interested in building or holding positions before a long Thanksgiving weekend for many of them that dovetails with month end. Markets are closed Thursday and exchanges close early on Friday.

Moreover, revised data showing gross domestic product rose at a 2.8% rate in the third quarter, as expected and the same as last month's first estimate, did not much bolster the case for the Federal Reserve to ease again next month, although traders still leaned that way, lifting odds a bit to 67%. Neither did consumer spending data that showed progress on lowering inflation appears to have stalled in recent months while the economy retained much of its solid growth momentum early in the fourth quarter.

"We all expected that inflation would pop up a little bit, but inflation is not getting out of hand. And that's the key,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “This paves the way for a 25 basis point cut in December and then probably a pause. But the pause won't likely be due to inflation data, but because of uncertainties over Trump's tariffs. I think the Fed will grow cautious.” The Commerce Department's personal consumption expenditures price index climbed 0.2% in October, matching September's unrevised gain. In the 12 months through October, the PCE price index increased 2.3% after advancing 2.1% in September.

While October durable goods orders rose a smaller-than-expected 0.2%, applications for unemployment benefits at 213,000 were a bit lower than last week's upwardly revised 215,000 jobless claims, indicating a solid labour market. Dollar/yen fell to its lowest in about five weeks, and was down 1.43% at 150.91 as trading wound down. The weakening dollar lifted the euro 0.74% to $1.0564. The euro/dollar pair hit its highest in a week, while the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell to its lowest since Nov. 13 and in afternoon trade was off 0.74% at 106.06. That put it down 1.9% from a two year high hit on Friday.

"Today may be a bit more about some profit taking, at least for the U.S. for a long weekend. "It's had, like I said, a phenomenal run here and still remains very, very robust," said Amo Sahota, executive directors of Klarity FX in San Francisco. Trump's vows on Monday of big tariffs on Canada, Mexico and China, the United States' three largest trading partners, knocked their currencies lower and have left investors jittery. Some analysts argued that inflation risks from tariffs and proposed tax cuts could prevent Trump from ushering in more disruptive measures.

"The recent sharp dollar appreciation largely decreases the asset values in dollars outside U.S. and hence increases the rebalancing need to sell the dollar at the month-end," said Sheryl Dong, forex strategist at Barclays. The outperforming yen has benefited from bets for a December rate hike in Japan, and position adjustments. The dollar's sell-off accelerated on Wednesday after the pair fell below the 200-day moving average at 151.99. "That I would deem that as being fairly significant in today's marketplace as well, just technically," Sahota said.

Analysts noted that there was some relief that the country is not in the firing line of Trump's possible tariffs. "Japan has a strong hand in dealing with U.S. trade concerns," said Jane Foley, senior forex strategist at RaboBank. It "is the U.S.'s largest overseas holder of U.S. Treasuries and the largest provider of foreign direct investment into the U.S.," she added. A ceasefire between Israel and Iran-backed group Hezbollah came into effect on Wednesday under a deal that aims to end hostilities across the Israeli-Lebanese border. While not a big factor on Wednesday, the wars in the Middle East and Ukraine have been a support for the dollar as a safe haven.

Against its Canadian counterpart, the greenback slipped 0.18% to C$1.4027, after touching a 4-1/2-year high of $1.4177 on Tuesday. The dollar was little changed against the Mexican peso near Tuesday's top that was its highest against since July 2022, fetching 20.622 pesos. Sterling strengthened 0.81% to $1.267, the Australian dollar strengthened 0.34% to US$0.6494 and the kiwi strengthened 1.06% to US$0.5896. The Chinese yuan steadied after drooping on Tuesday's tariff news. The dollar was 0.15% lower at 7.245 per dollar. In cryptocurrencies, bitcoin was up 5.19% at $96,414, digesting its run up to almost $100,000 last week.

South African Rand

Reuters: South Africa's rand was steady against the dollar on Wednesday, as the greenback eased after the release of a key U.S. inflation report. At 1551 GMT, the rand traded at 18.20 against the dollar, not far from its previous close. Trade in the rand has been volatile this week amid market jitters about the imposition of trade tariffs by U.S. President-elect Donald Trump. The dollar index was last down 0.7% against a basket of currencies after data showed the U.S. personal consumption expenditures price index climbed 0.2% in October, matching September's unrevised gain.

South African domestic investor focus will be on monthly producer inflation data on Thursday followed by money supply, trade and budget balance on Friday. On the stock market, the Top-40 index closed about 0.4% lower. South Africa's benchmark 2030 government bond was stronger, with the yield down 2.5 basis points at 9.03%.

Global Markets

Reuters: Asian shares were subdued on Thursday and the dollar was on the defensive after U.S. data showed progress in slowing inflation had stalled even as the economy remained resilient, raising doubt over the path the Federal Reserve could take next year. With the U.S. Thanksgiving holiday likely to keep trading thin for the rest of the week, traders remained hesitant in placing major bets. MSCI's broadest index of Asia-Pacific shares outside Japan was 0.07% lower, with Japan's Nikkei up 0.46%. Sentiment remained frail as investors pondered the possibility of a tariff war sparked by U.S. President-elect Donald Trump's policies.

Data on Wednesday showed U.S. consumer spending increased slightly more than markets expected in October but progress on lowering the rate of inflation appears to have stalled in recent months. The lack of success in bringing inflation back to the Fed's 2% target, together with the prospect of higher tariffs on imported goods, could narrow the scope for interest rate cuts next year. While the Fed is still widely expected to deliver a third rate reduction in December, minutes of the Federal Open Market Committee's Nov. 6-7 policy meeting published on Tuesday showed officials appeared divided over how much farther they may need to cut rates.

"We continue to expect the FOMC to cut the Funds rate by 25 basis point at its December meeting," said economist Kristina Clifton at the Commonwealth Bank of Australia. "However, another solid monthly core inflation for November will challenge the FOMC's view that inflation is trending down to 2%/year. Doubts around inflation converging sustainably to target would reduce market expectations for a December cut." Traders are pricing in 65% chance of the Fed cutting rates next month and are anticipating 75 basis points of easing by the end of 2025, LSEG data showed.

Macquarie strategists said the inflation outlook has become cloudier, with the possibility of the implementation of tariff threats by the incoming Trump administration having the potential to create a renewal of upward pressure in core goods. "While tariffs introduced in 2018/2019 didn't ultimately prove inflationary, we caution on extrapolating to the current circumstances," they said in a client note. In a surprise move, South Korea's central bank cut benchmark interest rates for a second consecutive meeting on Thursday as the economy stalled and inflation slowed more than policymakers predicted. The won weakened after the decision.

The yen was 0.3% lower at 151.615 per dollar but remained close to the one-month high it touched in the previous session. The Asian currency is headed for its strongest weekly performance since early September on growing expectations of a rate hike from the Bank of Japan next month. The euro was steady after rising 0.7% in the previous session as investors pulled back on rate cut bets in the wake of European Central Bank board member Isabel Schnabel saying that cuts should be gradual and move to neutral, not accommodative, territory.

In commodities, oil prices were steady as worry over supply was eased after a ceasefire deal between Israel and Hezbollah. Brent crude futures were little changed at $72.8 a barrel. U.S. West Texas Intermediate crude was steady at $68.7. Spot gold eased to $2,626 per ounce.

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