Global rate cuts put the dollar in the driver’s seat By Reuters

A look at the day ahead in European and global markets by Stella Kiu

A flurry of interest rate cuts over the past few days, with huge 50-basis-point moves in Switzerland and Canada and 25-basis-point easing by the European Central Bank, helped boost the U.S. dollar, which jumped 1% against the euro, 1, 6% in Swiss francs and 1.8% in Japanese Yen.

The dollar also drew energy from higher Treasury yields, as investors cut expectations for aggressive US policy easing next year. Markets are still confident of a rate cut by the Federal Reserve next week, but have all but given up on a move in January, which is priced at just a 20% chance.

The big wild card for the market outlook – US President-elect Donald Trump – will be back in the Oval Office by the next Fed meeting and may push out dozens of executive orders with broad implications for trade and policy.

The dollar’s relentless strength is putting pressure on emerging market currencies, limiting their scope for policy easing. Indonesia’s rupiah hit a four-month low on Friday, with its central bank having to intervene repeatedly to shore up the currency.

India’s central bank is believed to have likely sold dollars through state-owned banks to support the rupee, which is near record lows.

The yen was also a big loser, undercut by expectations that the Bank of Japan is unlikely to raise interest rates next week. Small businesses’ wage woes are one more reason the BOJ may proceed cautiously with any tightening.

An additional factor worth noting for US yields and the dollar is that US PPI data released on Thursday was biased upwards due to egg prices and the core rate fared much better, so analysts revised down expectations for the key core PCE index to around 0, 13% of 0.2%-plus.

Longer-term Treasuries suffered heavy losses this week, with yields on the benchmark 10-year bond down 17 basis points, while yields on the 30-year rose 22 basis points, the biggest weekly gain in more than a year.

This was partly due to the disappointing results of the 30-year bond auction on Thursday, but the rise in yields largely reflects the increase in terminal rate prices. US rates are seen to fall only slowly to 3.8% by the end of 2025, compared to 1.75% for Europe and 2.7% for Canada.

In Asia, most stocks are down, with China leading losses.

Hopes were high for China’s central economic work conference in Beijing after a Politburo meeting changed the monetary policy stance to “moderately loose”, the first such change in 14 years, but nothing concrete emerged.

Europe is poised for a lower open ahead of some secondary economic data, including UK monthly GDP and Eurozone industrial production. EUROSTOXX 50 futures were 0.3% lower, while Nasdaq futures rose 0.3%, near a record high.

Several ECB officials will speak later in the day. The central bank, which disappointed doves hoping for a 50 basis point move on Thursday, is expected to cut by a quarter point at each of its policy meetings until the middle of next year.

Key events that could affect the markets on Friday:

— Monthly UK GDP data

— Euro zone industrial production

— US import price data

— The Governor of the Central Bank of Portugal, Mario Centeno, speaks

(Stella Q; Editing by Edmund Claman)