02/12/2025 Daily Reports
Rollercoaster Markets: Why Dollar Downside Risks Are Here to Stay
USD: Still Vulnerable
- Rollercoaster Ride: After a volatile session driven by safe-haven flows, the Dollar remains under pressure. The current environment (both bonds and risky assets falling) is creating mixed signals.
- Valuation Check: The Greenback looks expensive relative to short-term rate differentials against most G10 currencies.
- Fed Outlook: Yesterday’s mixed ISM data didn’t shake the boat. Markets are likely to spend the rest of the week validating the dovish pricing for next week’s Fed meeting.
EUR: Waiting for a Signal
- Geopolitical Focus: The most critical driver for the Euro this week is not data, but the Russia-Ukraine peace talks. US Envoy Steve Witkoff’s meeting with President Putin could be a pivotal moment.
- CPI Outlook: Today’s flash CPI is expected to cool slightly (Headline to 2.0%, Core to 2.3%). While this is below consensus, it is not expected to be a game-changer.
- Target: If the USD drops as expected, EUR/USD is eyeing the 1.170 level again.
JPY: The Hawkish Turn
- BoJ Impact: Hawkish comments from Governor Ueda have sparked a selloff in Japanese bonds, with a December rate hike now priced at 20bp.
- Key Level: USD/JPY briefly dipped below 155.00. Unless the BoJ softens its tone, all conditions are in place for a decisive break lower this week.
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Risk-Off Start to December as Higher Yields Hit Equities While Nikkei Stabilises, Energy Firms and Gold Hovers Near Highs
- Global markets opened December on a cautious note as rising bond yields and a sharp bitcoin pullback triggered risk-off sentiment in US equities, with the Dow, S&P 500 and Nasdaq slipping even as futures ticked slightly higher ahead of a heavy US data and Fed-speech calendar. Within tech, Nvidia and other AI-linked large caps stayed in focus, with Nvidia supported by fresh partnership headlines while the broader “Magnificent Seven” traded mixed.
- In Europe, Germany’s DAX gave back part of its strong November gains, extending losses to over 1% on profit-taking and worries over higher global yields, and commentators now expect only modest moves as investors wait for fresh US macro signals. Japan’s Nikkei, by contrast, managed a modest rebound of around 0.5% after a sharp selloff tied to rising domestic yields, with financials leading on expectations of a potential Bank of Japan policy shift and ongoing AI-related tie-ups among major industrial and tech names.
- Across commodities, US natural gas futures have jumped on colder weather forecasts and stronger heating demand, with front-month prices around $4.9/MMBtu after a more than 14% gain in a month. Brent crude is holding near $63 per barrel after OPEC+ kept output policy unchanged and as markets digest Ukrainian drone attacks on Russian energy infrastructure and renewed US-Venezuela tensions.
- Gold has eased slightly after a strong November rally but remains close to record levels, with spot prices still up about 5–6% on the month and Indian demand supporting local prices.
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