FX UPDATE 25/11/2024

?The Dollar weakened on Monday after a strong rally, as the appointment of Scott Bessent for US Treasury Secretary appeared to reassure the bond market about fiscal discipline, which led to lower yields and reduced the currency's rate advantage. Yields on 10-year Treasuries dropped to 4.343%, down from 4.412% on Friday, as President-elect Donald Trump's selection of Bessent, a seasoned fund manager and fiscal conservative, was well-received by the bond market. However, according to Reuters reports, Bessent has also publicly advocated for a strong dollar and supported tariffs, implying that any decline in the currency could be short-lived. The Dollar has experienced eight straight weeks of gains, with many technical indicators indicating that it is overbought, as investors bet that Trump's policies will drive inflation and continue to bolster the greenback, Reuters reports. “Pricing in various US assets was pushed quite aggressively in one direction for three weeks,” said Geoff Yu, senior macro strategist at BNY. “Markets probably need to take a breather when it comes to their Dollar positions.” The Dollar index, measuring the greenback against six major peers, dropped 0.8% to 107.22, retreating from its two-year high of 108.090 reached on Friday. The greenback also fell 0.2% against the Japanese Yen, reaching 154.52, moving further away from its recent peak of 156.76.

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Elsewhere, the Euro gained 0.3% to reach $1.0452, recovering from Friday's two-year low of $1.0332. Resistance levels are seen at $1.0555 and $1.0610, while support is around $1.0195, with the key $1.0000 level acting as a major support point. The single currency was hit on Friday as European manufacturing surveys (PMI) revealed widespread weakness, while US surveys showed stronger-than-expected results. This contrast led to a sharp decline in European bond yields, widening the gap with US Treasury yields and benefiting the Dollar. Markets also began pricing in more aggressive easing from the European Central Bank (ECB), with the likelihood of a half-point rate cut in December rising to 59%. “Maybe it's time euro weakness fades heading into the ECB decision because a lot of dovishness has been priced in but more importantly?because Euro Dollar has been so aggressively sold,” Yu said.

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UK retail sales data also underperformed, prompting the market to increase expectations of a rate cut from the Bank of England, though likely in February rather than December. Sterling rose 0.2% to $1.2553 after reaching a six-week low of $1.2484 on Friday.

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The Pound to Euro exchange rate (GBP/EUR) is expected to stay within the September-November range over the next five days, with the 21-day moving average exerting a stabilising influence. The key economic event for the exchange rate this week will be the Eurozone inflation data, set to be released on Friday. However, US developments are influencing global foreign exchange movements at the start of the week, Pound Sterling Live reports. While the pound is stronger against the US dollar, it faces slight pressure against the euro as markets react to the news that Donald Trump has appointed Scott Bessent as his treasury secretary.

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In India, the Rupee strengthened to its highest level in over two weeks on Monday, supported by gains in regional currencies and potential Dollar inflows due to MSCI's equity index rebalancing. When?writing, the Rupee was trading at 84.30, its strongest since 7th?November, signalling a 0.1% rise from its previous session close of 84.4450. Despite falling to a record low of 84.5075 on Friday, which led to intervention by the Reserve Bank of India, the decline in the Dollar Index?and US bond yields, coupled with Dollar inflows, provided some relief on Monday, according to traders.

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