Core Viewpoint - The euro is currently lower against the dollar, and its rebound has been less than expected according to modeled paths, leading HSBC to suggest that the euro appears cheap [1] Summary by Relevant Sections - Currency Performance - The euro has depreciated against the dollar [1] - The rebound of the euro has not met the expectations set by its modeled path [1] - Investment Insight - HSBC indicates that the euro looks cheap at its current valuation [1]

The U.S. dollar has had a tough run this year and many expect the path to get tougher.The currency is lower compared to its major foreign counterparts as evidenced by the U.S. dollar index trading at 98.96 versus 109 earlier this year.The dollar has weakened especially against the euro. Today, $1.16 translated to one euro; earlier this year, it was $1.08. ...

Chief Economist Philip Lane said the central bank's modeling showed markedly lower inflation for three years in response to a 10% gain in the euro's exchange rate. ...

Core Insights - The Swiss franc has reached a 10-year high against the euro, driven by expectations of persistent inflation and potential reductions in US tariffs, leading to increased demand for the currency [1][3] - The franc's rise is supported by comments from the Swiss National Bank (SNB) indicating a slight increase in inflation, which has reduced speculation about a return to negative interest rates [2] - Hedge funds are positioning for further appreciation of the franc, particularly against the euro and yen, as December is historically a strong month for the currency [4] Currency Performance - The Swiss franc increased by 0.4% to 0.91862 per euro, marking its strongest level since January 2015 [1] - The current upward trend is on track for a seventh consecutive daily gain, the longest winning streak since August 2024 [1] Market Sentiment - Money markets have decreased the probability of negative interest rates to less than 30%, down from approximately 64% a month ago, reflecting a shift in market sentiment [2] - Reports of Switzerland nearing a 15% tariff reduction on exports to the US have further bolstered the franc [3] Hedge Fund Activity - Hedge funds are increasingly betting on the strength of the franc against the euro and yen, indicating a bullish sentiment in the market [4] - There is a potential for long positions against the US dollar as well, given the historical performance of the franc in December [4]

Market Sentiment - Risk-off sentiment has been pervasive across markets, leading to a stronger USD against most currencies, with the exception of JPY [1][9] - The Australian dollar and New Zealand dollar have been particularly weak, with the latter reaching a nearly seven-month low following a rise in the unemployment rate [9][10] Currency Performance - The U.S. dollar index was steady at 100.18, having reached as high as 100.25 for the first time since August 1 [5][10] - Sterling is near a seven-month low after UK finance minister Rachel Reeves hinted at broad tax rises in her upcoming budget [1][2] - The New Zealand dollar fell to $0.5635 after a 1.2% drop on Tuesday, marking a seven-month low [7][10] Stock Market Trends - Selling pressure dominated Asian stock markets, with Japan's Nikkei dropping 2.4% and South Korea's KOSPI plunging 4.8% [4][9] Economic Indicators - The ongoing government shutdown in the U.S. has halted the flow of macroeconomic data, increasing focus on private ADP payrolls [6][10] - The Reserve Bank of Australia's recent policy statement was not perceived as hawkish, contributing to the weakness of the Australian dollar [8][10] Cryptocurrency Market - Bitcoin experienced a 6.1% decline on Tuesday, reaching its lowest level since June 22, trading around $100,317 [8][10]

Core Viewpoint - The election of hardline conservative Sanae Takaichi as Japan's prime minister has led to a decline in the yen, with traders speculating on potential changes in interest rate outlook and increased fiscal spending [1][2]. Currency Market Impact - The yen fell 0.76% to 151.895 per dollar, marking its lowest level since October 14, and experienced its largest single-day decline in two weeks [2]. - The yen also faced challenges against the euro and sterling, indicating broader currency market pressures [2]. Government Appointments and Economic Policy - Takaichi plans to appoint Satsuki Katayama as finance minister, who has previously expressed a preference for a stronger yen, potentially influencing market perceptions regarding yen depreciation [3]. - Analysts suggest that inflation and household purchasing power will be critical issues for the new government, which may lead to a reluctance to support further yen depreciation [4]. Monetary Policy Considerations - The Bank of Japan (BOJ) faces challenges in navigating monetary policy, as Takaichi's support for fiscal stimulus complicates the path for potential interest rate increases [4][5]. - There are indications that monetary tightening may be delayed until fiscal easing takes effect, creating a complex environment for the BOJ [5]. Broader Market Context - The dollar index rose to a six-day high, supported by the weaker yen, amidst a generally positive market sentiment following optimistic trade deal discussions between the U.S. and China [6][7]. - Concerns regarding U.S. dollar funding and its implications for euro zone banks were highlighted, reflecting the interconnectedness of global financial markets [7].

Economic Outlook - The Australian dollar rose by 0.3% to $0.6504, buoyed by positive economic data from China and a more optimistic trade outlook [1][4] - China's economy grew by 1.1% in Q3, surpassing forecasts, with industrial output increasing by 6.5%, although the annual growth rate of 4.8% was the weakest in a year [2][3] - Analysts suggest that China is on track to meet its growth target of around 5%, indicating resilience against U.S. tariffs [3] Political Developments - The yen weakened initially as Sanae Takaichi appeared set to become Japan's next prime minister, following crucial political backing [1] - Takaichi's bid for premiership was bolstered by an alliance with the Japan Innovation Party, aligning more closely with her policy views after a previous coalition breakup [5][6] - The market is reacting positively to the potential for Takaichi's leadership, leading to bullish equities and bearish sentiment towards the yen [5] Market Sentiment - Market analysts indicate a sense of "mutually assured destruction" regarding U.S.-China trade tensions, with both sides acknowledging the risks of escalating tariffs [4] - There is a prevailing sentiment that markets will remain jittery until explicit announcements of de-escalation are made [5]

Currency Market Insights - The U.S. dollar is experiencing a third consecutive daily loss against the euro, while it is slightly increasing against the yen due to ongoing U.S.-China tensions and dovish comments from Federal Reserve officials [1] - The dollar index is down 0.05% at 98.64, indicating a potential weekly decline of around 0.3% [2] - U.S. Treasury yields are near multi-week lows, with the benchmark 10-year yield just above 4%, which is putting pressure on the dollar amid concerns over a prolonged U.S. government shutdown [3] Rare Earths and Trade Relations - Investors are closely monitoring China's recent expansion of rare earth export controls, which has been criticized by U.S. officials for potentially disrupting global supply chains [5] - There is speculation that China's export controls may be a bargaining tactic to gain concessions from the U.S. [5] - The escalation in Sino-U.S. trade tensions is prompting reactions from European governments, highlighting the potential impact on global supply chains and European output [6] European Political Developments - The euro reached a one-week high, increasing by 0.09% to $1.1651, following the survival of French Prime Minister Sebastien Lecornu in a no-confidence vote [7]

Market Trends - Investors are selling off US dollars, euros, and yen [1] - There's a surge in the price of Bitcoin, gold, and silver, indicating a shift to alternative assets [1] - Wall Street has termed this investment behavior as "debasement trading" [1]

Core Insights - The yen has weakened significantly, reaching 152.34 against the dollar and a record low against the euro, following Sanae Takaichi's unexpected victory as the new leader of Japan's ruling Liberal Democratic Party [2][4] - Market expectations for a Bank of Japan interest rate hike have diminished, with a 25% chance of a move at the BOJ's upcoming meeting, down from 57% prior to the leadership vote [5] Currency Performance - The yen's depreciation has sparked renewed interest in the carry trade strategy, where investors borrow low-yielding yen to invest in higher-yielding currencies [5] - Bank of America has revised its forecast for the yen to end the year at 155 per US dollar, up from a previous estimate of 153, citing increased political and fiscal risks [6] Market Reactions - Hedging costs against further yen depreciation have surged, with premiums for hedging now at their highest level in over three years [7] - Analysts from ING noted that the new government under Takaichi is expected to influence a stronger economy, leading to a steeper yield curve and an equity rally [5]