Dollar down further on rates speculation

Traders are eyeing a rate cut early in 2024.

The dollar extended a decline, with a gauge of greenback strength hitting its lowest level since August, amid speculation the Federal Reserve is nearing the end of its rate-hike cycle.

Traders are currently pricing in about a 30% chance of a first Fed rate cut in March following cool inflation data last week. Investors are awaiting publication Tuesday week of minutes of the last Fed rates meeting for further insight into policy makers’ thinking.

“The dovish Fed narrative remains in place,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “There is likely to be ongoing downward pressure on US yields and the dollar.”

U.S. equity futures were steady after a three-week stock rally that propelled the S&P 500 to an 11-week high. Microsoft Corp. climbed more than 2% in pre-market trading after appointing Sam Altman, the OpenAI co-founder ousted from his startup last week, to lead its in-house artificial intelligence team. Treasury yields edged higher ahead of a U.S. 20-year auction.

The Stoxx Europe 600 index fluctuated as a slew of negative corporate news weighed on shares.

Bayer AG slumped more than 10% after the German pharmaceutical giant stopped a key drug trial and suffered a defeat in a trial related to its Roundup weed killer. Ashtead Group Plc plunged after the UK equipment-rental company cut its revenue forecasts. Julius Baer Group Ltd. fell as much as 9.6% after the Swiss bank warned of a profit decline amid rising bad-loan provisions.

MOODY’S LIFTS ITALY

Italian banks rallied after Moody’s Investors Service lifted its outlook on the country’s debt to stable, removing the immediate threat of a downgrade to junk. Italy’s yield premium over German bonds narrowed.

Meanwhile, European natural gas prices jumped after a vessel seized in the Red Sea by Iran-backed Houthi rebels renewed concerns that the Israel-Hamas war could affect vital waterways for the fuel. Benchmark futures increased as much as 6.9% on Monday, halting a four-day run of declines. The increase was also driven by colder weather forecasts and higher crude oil prices ahead of an OPEC+ meeting later this week.

The European Central Bank may have to raise borrowing costs again if investor bets on monetary loosening undermine the institution’s policy stance, Governing Council member Pierre Wunsch said on Monday. He was the first of a number of ECB officials set to speak Monday and later this week.

In Argentina, libertarian candidate Javier Milei defeated Economy Minister Sergio Massa to win Sunday’s presidential runoff. Argentina’s bonds rallied, while a gauge of emerging-market currencies gained along with developing-nation stocks.

Elsewhere in emerging markets, Zambia’s eurobonds plunged after the country said it can’t implement a restructuring pact with bondholders as not all creditors supported the agreement. Securities due 2027 fell more than 2 cents in the dollar.

The offshore yuan strengthened after the People’s Bank of China boosted its daily reference rate for the currency to the strongest since August. The nation’s commercial lenders on Monday kept their benchmark lending rates unchanged, in line with the central bank’s decision this month to maintain policy rates in favor of other means to support stimulus spending.

Japan’s Nikkei 225 Stock Average briefly surpassed its June intraday peak to reach the highest level since 1990, extending its gains this year to about 28%. The index has been boosted by recent yen weakness, solid company earnings, and corporate governance reforms. Key events this week:

European Central Bank governing council members Pablo Hernandez de Cos, Francois Villeroy de Galhau, Boris Vujcic speak at separate events, Monday
Bank of England Governor Andrew Bailey speaks, Monday
US Conference Board leading index, Monday
European Central Bank President Christine Lagarde speaks, Tuesday
Canada CPI, Tuesday
Federal Reserve Nov. policy meeting minutes, Tuesday
Nvidia earnings, Tuesday
Eurozone consumer confidence, Wednesday
US initial jobless claims, University of Michigan consumer sentiment, durable goods, Wednesday
Eurozone PMIs, Thursday
UK S&P Global/CIPS Manufacturing PMI, Thursday
European Central Bank publishes account of Oct. policy meeting, Thursday
Thanksgiving holiday in the US, Thursday
Japan CPI, Friday
Germany GDP, Friday
US manufacturing PMI, Friday
Black Friday sales begin, Friday