Forex Today: US Dollar stays vulnerable ahead of top-tier economic data

Here is what you need to know on Wednesday, November 29:

Asian markets were a mixed bag on Wednesday, as they shrugged off a modest uptick on Wall Street overnight. Investors remained nervous ahead of China’s key inflation readings, which negated the growing optimism that a US Federal Reserve (Fed) policy pivot could be earlier than expected next year.

The US stock futures defend mild gains amid a renewed sell-off in the US Treasury bond yields and the US Dollar, as markets reacted to the dovish pivot from Fed Governor Christopher Waller, a known hawk. Waller’s comments bolstered Fed rate cut bets for next year, especially after he said on Tuesday, “if the decline in inflation continues "for several more months ... three months, four months, five months ... we could start lowering the policy rate just because inflation is lower.”

The dovish Fed expectations were also supported by Chicago Fed President Austan Goolsbee’s remarks, expressing concerns about keeping rates too high for too long. The US Dollar Index was knocked down to a new three-month low of 102.47 in early Asian trading, now recovering ground to trade near 102.65. Meanwhile, the US Treasury bond yields were smashed across the board, with the benchmark 10-year yields fast approaching the 4.25% level. The interest rates-sensitive two-year US Treasury bond yields slid to an over four-month low below 4.70%.

Within the G10 currency basket, the New Zealand Dollar (NZD) emerged strongest so far this Wednesday, underpinned by the Reserve Bank of New Zealand’s (RBNZ) hawkish pause. The RBNZ held the interest rate steady for the fifth straight meeting at 5.50% but left the door open for further rate increases, based on the inflation developments. NZD/USD jumped to fresh three-month highs of 0.6209 in a knee-jerk reaction to the RBNZ policy announcements before reversing to 0.6190, where it now consolidates.

The AUD/USD pair failed to sustain the upside near 0.6680 and came under renewed selling pressure in early Europe, as markets digested softer Australian monthly Consumer Price Index (CPI), fanning expectations that the Reserve Bank of Australia (RBA) is done with its rate hiking cycle. The official data from the Australian Bureau of Statistics (ABS) showed on Wednesday that the monthly CPI rose at an annual pace of 4.9% in October, slower than the 5.6% increase in September and below market forecasts of 5.2%.

Meanwhile, the Japanese Yen continued its winning streak against the US Dollar, smashing the USD/JPY to a fresh two-month low of 146.68. However, the pair cut losses and regained 147.00 after the dovish comments from Bank of Japan (BoJ) board member Seiji Adachi. Adachi dismissed speculation of ending negative rates early next year while noting that they are “not in a stage now to debate an exit from easy policy.”

EUR/USD is easing from its highest level in three months at 1.1017 to trade near 1.1000 in early European trading, as the US Dollar seems to have paused its run of declines. In a pre-recorded video at the European Financial Reporting Advisory Group Conference on Tuesday, European Central Bank (ECB) President Christine Lagarde made some comments on QT but failed to touch upon the interest rate outlook. All eyes now remain on the inflation readings from Spain and Germany. German state Of North Rhine-Westphalia (NRW) November CPI came in at 3.0% YoY, as against the October increase of 3.1%. On a monthly basis, NRW’s CPI dropped 0.3% in November vs. October’s decline of 0.1%.

GBP/USD is holding gains above 1.2700, reversing from the three-month high of 1.2733 set in the Asian session. The Bank of England (BoE) and the Fed policy divergence is seen benefiting the Pound Sterling. BoE Governor Andrew Bailey is due to speak at an event celebrating the 50th anniversary of the London Foreign Exchange Joint Standing Committee on Wednesday at 15:05 GMT.

Gold price has entered a phase of consolidation after clinching fresh six-month highs of $2,052 early Asia while WTI is looking to build on the previous recovery, currently trading just below the $77 mark, helped by expectations of further oil output cuts by OPEC and its allies (OPEC+). OPEC+ is set to meet on November 30 to decide on the continuation of output cuts next year.