Ahead Today
G3: US personal income, personal spending, and core PCE; eurozone CPI
Asia: China manufacturing PMI, Thailand’s balance of payment, and Q3 GDP from Taiwan and HK
Market Highlights
USDJPY surged past 154.00, rising around 1% yesterday as the US dollar strengthened in response to shifting rate expectations. The move was partly driven by markets unwinding some of their December Fed rate-cut bets following a hawkish rate cut by the Fed. Fed Chair Powell has signalled that a December cut is not a done deal.
Meanwhile, BOJ held rates at 0.50%, as widely expected. The number of dissenters against the policy decision remain at 2. However, Governor Ueda struck a notably dovish tone during his press conference. He stated that there is no preset timeline for future rate hikes, that Japan is not at major risk of falling behind the policy curve, and that more data is needed before deciding the next policy move. He also cited ongoing tariff uncertainty as a factor in BOJ’s cautious policy stance. Taken together, BOJ appears to be in no rush to raise rates. BOJ rate normalization will likely be gradual.
Meanwhile, the recent meeting between President Trump and Chinese President Xi in Busan resulted in a one-year extension of the US-China trade truce, signalling a temporary easing of trade tensions. Beijing has committed to pause the tightening of export controls on rare earth minerals for a year, an area where China holds strategic leverage over the US. Additionally, China has agreed to begin buying 12mn tons of soybeans from the US, offering a boost to US agricultural exports. In a reciprocal move, President Trump will cut fentanyl tariffs on Chinese goods to 10% from 20%. These developments suggest a mutual willingness to stabilize trade relations for now.
Regional FX
Asian currencies have weakened against the US dollar following hawkish rhetoric by Fed Chair Powell. The Japanese yen (JPY), South Korean won (KRW), and Indian rupee (INR) led regional losses, depreciating by 0.9%, 0.7%, and 0.6% respectively. A thaw in US-China relations has offered limited relief against broad dollar strength. The rupee is also nearing its recent low of around 88.80 against the US dollar. Meanwhile, the Philippine peso has been trading close to the 59.00 threshold, having breached above it on 28 October. The Bangko Sentral ng Pilipinas (BSP) reportedly stated that remittances and economic growth will be supportive of PHP. Philippine exports rose 15.9%yoy in September, while imports were up by 2.1%. This brings the Philippine trade deficit to $4.35bn, a narrowing from $5.1bn deficit a year ago.