Dollar nears 2-year high

The dollar index (DXY) hovered around 106.6 on Monday, maintaining its position near a two-year peak. The strength of the greenback reflects expectations of a resilient US economy under a Trump presidency and reduced likelihood of aggressive Federal Reserve rate cuts.

Meanwhile, the Japanese yen reversed some of its sharp gains from the previous session. Bank of Japan (BoJ) Governor Kazuo Ueda reaffirmed the bank’s gradual tightening approach but refrained from offering specific guidance on the timing of rate hikes.

Yen weakens after Ueda’s remarks

The yen saw broad losses during Monday’s Asian trading session, as markets reacted with disappointment to Ueda's latest comments. While reiterating that wage growth remains pivotal to sustaining inflation, Ueda avoided signaling a potential rate hike in December, leaving investors uncertain about the BoJ’s next move.

In his speech, Ueda emphasized that any adjustments to policy would depend on evolving economic activity, price trends, and financial conditions. This cautious tone underscored the central bank’s commitment to a measured approach as it monitors Japan’s economic trajectory.

Inflation data, PMIs in spotlight this Week

Markets now turn their attention to key inflation reports and PMI data from major economies, including the UK, Canada, and Japan. These indicators are expected to shape the outlook for central bank policies.

October’s headline CPI in UK is forecast to rise to 2.2% from 1.7%, exceeding the BoE’s 2% target. Core inflation is projected to remain elevated above 3%. BoE Governor Andrew Bailey has previously warned that substantial relief from services inflation may not materialize until 2025.

Canada’s inflation data for October is expected to show headline CPI climbing to 1.9% from 1.6%, while core measures are likely to remain stable or decline slightly. This scenario supports expectations for the Bank of Canada (BoC) to continue its easing cycle, with markets pricing in another 50 basis point rate cut in December, potentially bringing the policy rate closer to neutral territory.

Purchasing Managers’ Index (PMI) releases from Australia, Japan, the Eurozone, the UK, and the US will also command attention. In the Eurozone, weak economic activity has emerged as a significant concern, with recent European Central Bank (ECB) meeting accounts highlighting downside risks to inflation. Should PMI figures fail to indicate a rebound, the likelihood of an ECB rate cut in December could increase.