Inflation Data, Tariff Concerns, and Central Bank Policies Shake Global Currencies and Indices | Daily Market Analysis

Key events:

• UK - GDP (MoM) (Oct)

The S&P 500 ended Thursday in negative territory as Treasury yields surged, driven by an inflation report that exceeded expectations.

The Dow Jones Industrial Average declined by 234 points, or 0.5%, while the S&P 500 and NASDAQ Composite fell by 0.5% and 0.7%, respectively.

The Australian Dollar continues to face challenges against the US Dollar as of Friday. The USD strengthened across the board, fueled by tariff threats from the Trump administration. Speculation about a possible 10% tariff on Chinese imports, given China’s status as Australia’s largest trading partner, added further pressure on the AUD/USD pair.

However, the AUD received temporary support after the release of mixed domestic employment data on Thursday. Seasonally adjusted employment rose by 35,600 in November, increasing total employment to 14.535 million. Meanwhile, the unemployment rate dropped to 3.9%, beating market forecasts of 4.2% and marking the lowest rate since March.

The US Dollar gained strength following a higher-than-anticipated US Producer Price Index (PPI) report on Thursday. The PPI rose by 0.4% month-over-month in November, the largest increase since June, after an upwardly revised 0.3% gain in October, exceeding the 0.2% forecast.

Looking ahead, the US Federal Reserve's upcoming interest rate decision will dominate market attention next week. According to the CME FedWatch Tool, traders are fully pricing in a 25 basis point rate cut for December 18.

The Japanese Yen extended its losing streak for the fifth consecutive day on Friday, hitting a two-week low against the US Dollar during the Asian session. The decline is attributed to diminished expectations for another interest rate hike from the Bank of Japan at its upcoming policy meeting.

Additionally, rising US Treasury bond yields, supported by a less dovish outlook for the Federal Reserve, have further weakened the JPY. Earlier in the day, the BoJ’s Tankan survey showed a slight improvement in business confidence among large manufacturers in Japan during the fourth quarter of 2024, but this had little impact on the Yen.

The USD/CAD pair climbed for the second straight session, reaching 1.4239 during Friday’s Asian trading, the highest level since April 2020. This surge is largely attributed to the Trump administration's tariff threats, which bolstered the USD and weighed on risk-sensitive currencies like the Canadian Dollar.

Furthermore, lower crude oil prices have added pressure on the commodity-linked Canadian Dollar. As Canada is a major crude oil supplier to the US, the subdued performance of West Texas Intermediate (WTI) crude oil has amplified challenges for the CAD.

Despite these headwinds, the Canadian Dollar may find some support following signals from the Bank of Canada for a more gradual approach to future interest rate adjustments. BoC Governor Tiff Macklem emphasized that monetary policy would evolve cautiously, provided the economic outlook remains stable. Macklem also cited potential US tariffs under President-elect Donald Trump as a significant uncertainty.

The EUR/USD pair continues its downward trajectory during the Asian session on Friday, hitting a three-week low of 1.0455. The Euro remains under pressure from the European Central Bank’s dovish stance and concerns over the Eurozone’s economic slowdown.

The ECB’s fourth rate cut this year, announced on Thursday, coupled with indications of further easing in 2025, highlights a sharp contrast with expectations of a less dovish Federal Reserve. Persistent geopolitical tensions, including the Russia-Ukraine conflict and trade war fears, further support the safe-haven US Dollar, weighing heavily on the EUR/USD.

Similarly, the GBP/USD pair remains under pressure, marking its third consecutive day of losses and trading around 1.2660 during Friday’s Asian hours. The British Pound struggles amid a stronger USD, spurred by tariff concerns.

Market focus now shifts to the UK’s upcoming GDP and factory output data, expected later on Friday, which will offer further insights into the nation's economic performance. Nonetheless, the Pound's downside risks appear somewhat contained, as markets anticipate a slower pace of monetary policy easing by the Bank of England compared to its global counterparts.