Euro Could Extend Recent Losses Against Dollar — Market Talk

0942 GMT - The euro is at risk of falling below $1.10 in coming days, ING's Francesco Pesole says after the single currency reached an 18-month low of $1.1065 overnight, according to LSEG. A decisive move below $1.10, however, would probably require markets to seriously entertain the Federal Reserve raising interest rates by 50 basis points in December, he says. "That looks like a stretch for now." The market prices a 9% chance of a 50bps Fed rate-rise in December and an 90% chance of a 25bps move, LSEG data show, following higher-than-expected U.S. inflation data and remarks from Fed Governor Christopher Waller supporting the prospect of more aggressive tightening earlier this week. The euro last trades flat at $1.1092. ([email protected])0932 GMT - The U.K. economy continues to grow at a steady pace, defying the global energy supply shock. The latest data show annual GDP expanded at 2.1% in September, above the 1.9% consensus forecast by economists in a WSJ survey. If the economy continues to grow at a steady pace, it could prompt the Bank of England to raise interest rates further over the coming months, undoing the BOE rate cuts carried out in 2024 and 2025, Omnis Investments' Patrick O'Donnell says in a note. Markets fully expect three more BOE rate rises by July 2027, following the 25 basis points rate increase delivered in November, LSEG data show. ([email protected])0925 GMT - Indonesia's political uncertainty following Vice President Gibran Rakabuming Raka's resignation adds to market headwinds, CIMB analysts say in a note. However, President Prabowo Subianto's parliamentary majority remains intact, limiting the risk of an immediate policy shift, they say. The succession process could reshape coalition ties ahead of the 2029 election, adding to political uncertainty, they reckon. Renewed U.S. dollar strength, a hawkish Fed and lingering concerns over Indonesia's MSCI classification could remain weighing on the rupiah, which has reached a record low. The analysts expect Bank Indonesia to face an increasingly complex policy balancing act, while retaining their forecast for 25bp rate hikes in December and 1Q 2027. ([email protected])0915 GMT - Bitcoin is not yet performing a role as digital gold as its correlation to equities remains too high, according to Citi's head of asset allocation Alex Saunders. "The problem with the digital gold thesis is that bitcoin still has a large equity [correlation]," he says. Saunders adds that in five to ten years, bitcoin should tend toward becoming a hard asset and hedge against the falling value of government-issued currencies. But the market will only be seen as mature when the correlation to gold is much higher than it is at present, and the correlation to equities much lower. Bitcoin is 1.1% lower at $73,499, and 16% lower year to date, while spot gold has seen a 7% year-to-date decline. ([email protected])0833 GMT - Yields on U.K. government bonds, or gilts, fall as investors shift funds from risk assets to relatively safer assets amid volatility in the tech sector. News about Nvidia's plan to oust its Chief Executive Officer Jensen Huang have raised concerns in the tech sector due to Huang's role as leader of one of the largest AI companies. Meanwhile, the latest U.K. GDP data came in better-than-expected, with annual GDP growth at 2.1% in September, above the 1.9% growth expected by economists in a WSJ poll. Nonetheless, the economic outlook over the coming year is uncertain due to geopolitical pressures, rising energy costs, and high interest rates. Ten-year gilt yields fall 0.9 basis points to last trade at 5.216%, Tradeweb data show. ([email protected])0809 GMT - The U.K.'s output per worker is increasing as AI drives productivity, boosting economic growth, Deutsche Bank's Sanjay Raja says in a note. The latest data show U.K. annual GDP rose 2.1% in September, above the 1.9% growth expected by economists in a WSJ survey. AI-related spending has also increased notably, adding around 0.4 percentage points to U.K. GDP growth this year, Raja says. ([email protected])0805 GMT - The U.S. dollar's recent rapid appreciation could have further to go, KBC Bank analysts say in a note after the DXY dollar index reached a 19-month high. The DXY last traded flat at 102.911, having risen to 103.083 overnight, the highest level since April 2025. The euro meanwhile fell below key support at $1.1111, the bank's analysts say. The dollar has gained its recent strength from increased market expectations of a December interest-rate hike by the Federal Reserve. The euro last traded steady at $1.1086, having reached an 18-month low of $1.1065 overnight, LSEG data show.([email protected])0747 GMT - Sterling shows little reaction even after better-than-expected U.K. GDP data for September. The data show monthly GDP rose 0.2% in September, compared to the 0.1% contraction forecast by economists in a WSJ poll. However, the economic outlook is concerning due to ongoing geopolitical conflicts, rising energy costs, and anticipated interest rate rises by the Bank of England, Ebury's Samuel Edwards says in a note. Sterling falls 0.1% against a stronger dollar to $1.3262, while the euro trades flat versus sterling at 0.8349 pounds, both little changed from levels before the data. ([email protected])0738 GMT - Eurozone government bond yields are largely stable after market opening, awaiting fresh drivers to trade on. The eurozone data calendar is thin, while government bond supply will come only from Italy. The Italian Treasury will auction a total of 6 billion euros to 7.25 billion euros in September 2029- and September 2033-dated nominal BTPs and April 2046-dated green BTP. The 10-year German Bund yield is up 0.1 basis point at 3.315%, according to Tradeweb. ([email protected])0733 GMT - The U.K. economy has been more robust than expected, with the latest data showing monthly GDP grew at 0.2% month-on-month in September, better than the 0.1% contraction expected by economists in a WSJ poll. "The U.K. has continued to grow despite a decidedly unhelpful backdrop, but there is a danger the headline number flatters an economy that is beginning to lose momentum underneath," Quilter's Kit Rees says in a note. Rising energy prices, higher labor costs, and cost-of-living pressures could weigh on the economy over the coming year, Rees says. ([email protected])0721 GMT - Jefferies has stayed away from French government bonds and its view hasn't changed but further spread tightening could prompt it to enter on the selling side. During the recent spread tightening French bonds benefited from short covering as positioning was very stretched on the short side, global economist Mohit Kumar says in a note. "But our positioning indices suggest that positioning is now fairly clean," he says. If the 10-year French OAT-German Bund yield spread falls below 140 basis points, "we would be inclined to have a short France versus Germany view," he says. The 10-year OAT-Bund yield spread is last at 147 basis points, according to LSEG.([email protected])0721 GMT - The dollar remains elevated after reaching a 19-month high against a basket of currencies overnight, supported by market expectations for the Federal Reserve to raise interest rates as much as 50 bps in December. Markets see an 88% chance of a 25 bps rate-rise in December and a 12% chance of a larger 50bp move, LSEG data show. Expectations are boosted by higher-than-expected U.S. inflation data and remarks from Federal Reserve Governor Christopher Waller Tuesday about the prospect of more aggressive tightening. The DXY dollar index rises 0.1% to 103.016, having reached as high as 103.083 overnight. ([email protected])