Upbeat US non-farm payroll data drives the greenback

Ahead of the ECB’s rate decision this week whereby rates are expected to remain constant, the market is increasingly anticipating a rate cut in Q1 2024. Euro area sovereign bond yields have been declining in relation to this market anticipation. For instance, German 10-year bond yield has fallen below 2.2% last week, the lowest point since May 2023, French 10-year yield has hit 2.73% while Italian BTP yield plummeted below 4%. Meanwhile, the ECB has announced that it will be incorporating climate change considerations into its monetary policy framework, in order to mitigate the effect of climate change on inflation. The ECB will set new collateral limits with the objective of encouraging financial institutions to factor in climate-related risks when making lending decisions. Furthermore, bank-owned crypto services will come under the regulatory umbrella of the ECB.? The fibre is currently trading at 1.0764, influenced by upbeat US labour statistics.

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Last week, non-farm payrolls exceeded pre-pandemic levels with 199,000 new jobs added to the US economy in November, average hourly earnings, also exceeded expectations, up 0.4% for the same period and the monthly unemployment rate dropped to 3.7%.?In addition, the Michigan consumer sentiment index rose to 69.4 points last week. Now these data highlight the resilience of the US economy and may signal the termination of policy tightening in the context of the 2-day FOMC starting tomorrow. While the market wants clarity on rate cuts, reversing policy tightening may not be an option until well into 2024 as per recent comments from Fed officials. Accordingly, the most likely outcome of the FOMC with regard to interest rates would be a pause in December.? However, FOMC officials will be taking an informed decision this time as Consumer Price Index data are due tomorrow.?Today, updated yields for the 3-month and 6-month bill as well as 3-year and 10-year note are due following auctions taking place in the course of the day. As expected, the greenback is reacting positively to encouraging economic data and currently trading at 104.08 against similar majors at the time of writing.