FX daily: Jobs and Consumer Confidence to weigh on Dollar

The Dollar is a little weaker across the board in quiet trading conditions. The yen is outperforming on some very mild verbal intervention from Japanese authorities - but hardly enough to drive a sustainable trend. In a market deprived of US data by the government shutdown, there may be more focus than usual on reports that Amazon plans to cut 30,000 jobs.

USD: Focus on layoffs and Consumer Confidence

The dollar is a little weaker across the board at the start of the week. We mentioned yesterday how the low fixings in USD/CNY were a positive for EM currencies and a mild dollar negative, and once again, USD/CNY has been fixed lower in Asia last night. Optimism remains intact that Presidents Trump and Xi can agree on a meaningful trade truce this Thursday, where we remain very much focused on what happens to China's threats of stringent controls on rare earth exports.

Leading the dollar lower overnight has been USD/JPY. Being blamed for the move are various comments from Japanese Finance Ministry officials that they are watching the yen closely - interpreted as some kind of low-level verbal intervention. But we have been here many times before, and such comments look unlikely to deliver a lasting reversal in USD/JPY. More interest will be had in Thursday's Bank of Japan meeting, where no change is expected, but the market still attaches a 38% probability to a 25bp hike in December. Words to the effect that the BoJ still stands to normalise policy could prove a mild yen positive on Thursday.

But for the dollar itself, we've been bereft of data and are having to rely on anecdote. Today, the financial press is reporting that Amazon may be set to announce 30,000 job cuts. We haven't had official job data for a while now, but surveys have suggested that consumers are increasingly worried about their job prospects. And later today, we'll get the October release of the Conference Board's Consumer Confidence survey. A weak number here could weigh on the dollar. Today also sees the release of the S&P Case-Shiller house price index for August, where house prices have fallen five months in a row. This will have relevance for both consumption and inflation, where lower imputed rents should provide more comfort to the Fed on inflation.

We're not looking for big swings in the dollar, but a softish set of US data today could mean that DXY makes a run at 98.00 later in the day.

EUR: Will French corporate tax hiked be welcomed?

EUR/USD has nudged through resistance at 1.1650 in quiet markets. The softer dollar has been the driver, although we wonder whether some compromise on the French budget is helping too. Here the National Assembly yesterday adopted an amendment which could see an extra EUR2bn raised from corporate taxes next year. That seems a drop in the ocean for the French budget - and not particularly positive for French growth - but investors may be more interested in compromise and a path toward a 2026 budget. The link between this and a milder, stronger EUR/USD is probably tenuous at best.

For the eurozone today, we have some releases from the ECB. Three-year consumer inflation expectations are expected to remain at 2.5% YoY. And we'll also see the latest ECB bank lending survey. With long-dated EUR swap rates having risen 30-40bps this year - plus ongoing uncertainty - lending looks unlikely to surprise on the upside.

As above, let's see if the second/third-tier US data proves a market mover today. If so, EUR/USD could edge up towards 1.1700.

GBP: Food price inflation softens

During a quiet period for UK data, focus today could fall on a report from the British Retail Consortium that food inflation has fallen to 3.7% year-on-year in October from 4.2%. Sticky food inflation had been one of the factors preoccupying the Bank of England and delaying rate cuts. The news might increase interest in positioning for a BoE rate cut at the December meeting. A 25bp cut is currently priced with a 35% probability. The meeting follows the budget in late November, also seen as a sterling negative.

Expect the news to keep EUR/GBP bid and not far from important resistance at 0.8750/60. And given that sterling is quite an expensive sell with one-week rates above 4.00%, interest may emerge to explore the downside in GBP/NOK and GBP/AUD, because of both the high yields available in Norway and Australia and the supportive environment for commodity prices.

CEE: Despite the closed market we can hear from the CNB

Rates markets saw only a muted opening this week in the CEE region with a lack of data. FX, on the other hand, saw some positive spillover from global markets, benefiting in particular the HUF, which is approaching its strongest levels since early October. Also, the slow grind of EUR/USD up is adding some fuel to CEE, but we will still wait for global central banks in the coming days, and trade headlines will dictate sentiment.

In the Czech Republic, the market will be closed today, but that should not prevent us from seeing some headlines from the Czech National Bank before the start of the blackout period on Thursday. Otherwise, the calendar in CEE has little else to offer. This leaves the door open to a global story support for CEE FX, and we could see further smaller gains across the board.

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