The risk environment remained mixed early Thursday, as U.S. data showed uncertainty and anxiety about the upcoming December Federal Open Market Committee (FOMC) meeting and the potential appointment of a new Federal Reserve (Fed) Chair. This was coupled with mixed signals from Microsoft’s AI sales outlook and President Donald Trump’s decision on Nvidia’s chip sales to China. Market optimism was also challenged by cautious sentiment ahead of today’s U.S. employment data and a heavy data load on Friday. However, the dovish stance of the Fed and ongoing Ukraine-Russia tensions continued to support a hopeful outlook for traders.
Despite a slew of U.S. data releases, the U.S. Dollar struggled to gain momentum. Treasury bond yields pulled back, and market expectations for a rate cut by the Fed in December remained high. The U.S. ADP Employment Change for November showed a loss of 32,000 jobs, far worse than the +5,000 forecast. Meanwhile, Industrial Production for September rose by 0.1% month-over-month (MoM), slightly above expectations, and the S&P Global Services PMI for November came in at 54.1, below the initial estimate of 55.0.
On a more positive note, the U.S. ISM Services PMI for November rose to 52.6, the highest since May, exceeding expectations of 52.0. The Chicago Mercantile Exchange's (CME) FedWatch Tool suggests an 89% chance of a rate cut in December, up from about 40% in mid-November, which initially raised market concerns but later fueled a more optimistic mood.
In geopolitical developments, the situation in Ukraine remained tense, with Russian President Vladimir Putin criticizing European demands for peace, while Ukrainian President Volodymyr Zelenskyy expressed concern that U.S. support might wane if Trump were re-elected. Trump himself spoke about Putin’s meeting with the US envoy Steve Witkoff, emphasizing the potential for ending the war but offering little clarity on the outcome.
The markets also remain uncertain about Trump’s pick for the next Fed Chair, with National Economic Advisor Kevin Hassett seen as a potential candidate. While no official announcement was made, the possibility of Hassett’s appointment raised concerns about the politicization of the Fed, which could weigh on the U.S. Dollar and risk assets.
Treasury Secretary Joseph Lavorgna shared optimistic views on U.S. economic growth, citing the effects of the Trump tax act, and Commerce Secretary Howard Lutnick downplayed the impact of tariffs on job numbers. At the same time, Trump administration officials continued to discuss tariffs and trade policies, with Treasury Secretary Scott Bessent defending tariffs as a necessary tool and reiterating the importance of the U.S.-China relationship.
In China, President Xi Jinping outlined plans to expand domestic demand in the country’s 15th Five-Year Plan. The People’s Bank of China set the yuan at 7.0733 per dollar, signaling an effort to limit currency gains as sentiment toward China improved.
Meanwhile, European Central Bank (ECB) President Christine Lagarde noted that economic growth in the Eurozone was expected to benefit from higher household spending and a resilient labor market, though she cautioned that risks to the economic outlook remained.
Data from the Eurozone showed mixed results, with Germany and the Eurozone seeing positive results in the final S&P Global PMIs for November, while the EU Producer Price Index (PPI) for October was more mixed. Still, the softer U.S. Dollar helped EUR/USD hit a seven-week high, continuing an eight-day uptrend.
In Japan, the auction of 30-year Japanese Government Bonds (JGBs) saw the highest demand since 2019, signaling continued interest in long-term bonds. Despite some volatility in the yen, the Bank of Japan (BOJ) maintained its accommodative monetary stance, with Governor Ueda acknowledging uncertainty around the neutral interest rate and the potential for further tightening.
Australia reported a trade surplus of 4.385 billion USD in October, exceeding expectations, and household spending rose sharply. This supported a stronger Australian Dollar, which saw gains both before and after the release of the data.
In oil markets, Venezuelan President Nicolás Maduro confirmed a recent phone conversation with Trump, suggesting the possibility of a thaw in U.S.-Venezuela relations. This news raised expectations of potential supply relief, limiting upside risks for crude prices. Meanwhile, U.S. crude oil inventories rose by 0.574 million barrels, contrary to expectations for a decline.
As for currency markets, the U.S. Dollar Index (DXY) broke its nine-day losing streak but lacked upward momentum, stalling the moves of other major currencies. EURUSD eased from a seven-week high, GBPUSD softened after its biggest gain in six months, and USDJPY showed modest gains. Meanwhile, the Australian Dollar hit a five-week high, and the Canadian Dollar bounced back from a weekly low, despite a larger-than-expected build in crude oil inventories. That said, NZDUSD seesaws near a five-week top, while cryptocurrencies remain sidelined after a two-day recovery move.
EURUSD posts its first daily loss in nine days, edging lower from its highest level since October 17. Traders are staying cautious ahead of the upcoming Eurozone Retail Sales data, and U.S. Challenger Job Cuts and Jobless Claims reports. The pair is also facing pressure from a corrective bounce in the U.S. Dollar and mixed remarks from ECB President Christine Lagarde. Despite this, overall sentiment remains optimistic for buyers, supported by the dovish bias from the Federal Reserve and the European Central Bank's reluctance to further cut rates.
The broadly weaker U.S. Dollar and strong UK PMIs for November helped GBPUSD make its biggest daily gain since April, reaching the highest level in a month. However, the Pound saw a pullback early Thursday as the market consolidated ahead of U.S. data releases and mixed sentiment.
USDJPY, despite the Bank of Japan's (BoJ) hawkish stance, failed to gain traction and is on track to post its second consecutive weekly loss. This is due to expectations of a BoJ rate hike and the JPY’s role as a traditional safe-haven asset. A rise in Japanese Government Bond (JGB) yields earlier in the week supported the Yen, but it has since pulled back.
Australia’s strong trade balance surplus and robust household spending helped AUDUSD maintain its upward momentum for the third consecutive day, reaching a one-month high. The Aussie pair managed to shrug off the U.S. Dollar’s corrective bounce, mixed market sentiment, and news from China, which weighed on NZDUSD, despite the Kiwi hitting a monthly high without further upside momentum.
Meanwhile, USDCAD reversed its two-day losing streak, bouncing off a weekly low. This move was supported by upbeat Canadian data and a softer U.S. Dollar, despite a surprise rise in crude oil prices, which usually benefits Canada given its reliance on oil exports.
WTI crude oil stays firm for the second day in a row, despite a surprise rise in U.S. weekly oil inventories. This could be due to mixed geopolitical news, OPEC+ inaction, and a weaker U.S. Dollar providing support.
Meanwhile, gold prices remain range-bound for the third consecutive day, facing mild pressure as traders look for additional catalysts beyond the softer USD to sustain the early-week rally. The consolidation in Treasury bond yields is also weighing on the precious metal.
Bitcoin (BTC) and Ethereum (ETH) paused their two-day recovery, likely due to challenges to broader market optimism and a corrective bounce in the U.S. Dollar, which tempered crypto momentum. Meanwhile, equities in the Asia-Pacific region edged higher.
On Wall Street, major U.S. stock indices closed higher despite mixed signals at the start of the day. The Dow Jones rose by 408.44 points (0.86%), while the S&P 500 and NASDAQ gained 0.30% and 0.17%, respectively. However, concerns about Microsoft’s AI sales outlook weighed on the tech sector. Initially, rumors that Microsoft had lowered its AI sales quotas caused some bearish sentiment, but a subsequent CNBC report debunked those rumors, easing investor fears. Additionally, uncertainty around President Trump’s potential Fed Chair pick, Kevin Hassett, added to the challenges for the equities market.
The economic calendar today features Eurozone Retail Sales, Canada’s Trade data, and U.S. Challenger Job Cuts and Jobless Claims, which will keep traders busy. However, the spotlight will remain on President Trump’s decision regarding the next Fed Chair, ongoing Ukraine-Russia developments, and other trade and political news.
Overall, it's expected to be another mixed day as traders prepare for next week's FOMC meeting, which could weigh on the U.S. Dollar and support risk assets like equities, cryptocurrencies, and antipodean currencies.
Still, EURUSD may see a rebound if Eurozone data is strong and U.S. numbers disappoint, reinforcing expectations for a dovish Fed. However, any negative risk-related news or a hawkish Fed Chair pick could see the U.S. Dollar extend its recent gains, maintaining the market’s current consolidation.
May the trading luck be with you!
