Swiss Franc Weakens After SNB Decision, Dollar Strengthens (16-20 December)

The dollar index rose above 107, gaining 1% for its strongest week in a month, as markets priced in a 25-basis point Fed rate cut next week.

The dollar index rose above 107, gaining 1% for its strongest week in a month, as markets priced in a 25-basis point Fed rate cut next week. The euro weakened after the ECB opted for a 25-basis point cut over 50, while the pound hit a six-month low against the dollar on poor growth data.

Gold rose nearly 1% on mixed U.S. inflation data and optimism over a December Fed rate cut, with markets assigning a 93% chance of a 25-basis point cut.

Silver dropped below $31 per ounce, pressured by weak Chinese demand. U.S. Treasury yields rose, with the ten-year at 4.38% and two-year at 4.22%.

Japan GDP (QoQ) (Q3)

Japan's GDP grew 0.3% in Q3 2024, beating the 0.2% forecast, after a revised 0.5% rise in Q2. Business investment fell 0.1%, less than expected, and net trade dragged GDP by 0.2 points, better than the 0.4-point forecast. Exports grew 1.1% and imports 1.8%, both slower than in Q2. Private consumption rose 0.7%, supported by wage growth, while government spending increased only 0.1%, down from 1.0% in Q2.

RBA Interest Rate Decision (Dec)

The RBA held its cash rate at 4.35% for the ninth consecutive meeting, as expected. While headline inflation has eased, underlying inflation remains high and is not projected to hit the 2-3% target until 2026. Economic data aligns with forecasts, though household consumption recovery may be slower, impacting growth and the labor market. Future decisions depend on data and risks, including geopolitics. The interest rate on Exchange Settlement balances remains at 4.25%.

German CPI (MoM) (Nov)

Germany's inflation rose to 2.2% in November from 2.0% in October, after staying below 2% in September (1.6%) and August (1.9%). Higher service costs drove the increase, while energy prices continued to ease inflation, though less than before. Month-on-month, consumer prices fell 0.2%.

U.S. CPI

In November, the CPI-U rose 0.3%, up from 0.2% in the previous four months, with an annual increase of 2.7%. Shelter rose 0.3%, contributing nearly 40% of the monthly gain. Food prices increased 0.4%, with food at home up 0.5% and food away from home up 0.3%. The energy index rose 0.2%, recovering from no change in October. The core index, excluding food and energy, also rose 0.3%, matching the previous three months. Annually, the core index rose 3.3%, while energy fell 3.2%, and food increased 2.4%.

BoC Interest Rate Decision

The Bank of Canada cut its key rate by 50 basis points in December, the second consecutive cut, totaling 175 basis points from a 5% peak. Policymakers signaled no further aggressive cuts ahead, removing earlier guidance for reduced borrowing costs. The decision followed weak 1% GDP growth in Q3, with Q4 growth at risk, though consumer spending was stronger. Inflation is expected to stay near 2%, but potential US tariffs add uncertainty.

SNB Interest Rate Decision (Q4)

In December, the Swiss National Bank (SNB) cut its key rate by 50 basis points to 0.5%, exceeding expectations for 25 points. This fourth consecutive cut, the largest since 2015, brings rates to their lowest since November 2022. Inflation fell from 1.1% in August to 0.7% in November and is projected to average 1.1% in 2024, 0.3% in 2025, and 0.8% in 2026, within the SNB's target range. GDP growth is forecast at 1% for 2024, rising to 1-1.5% in 2025, though risks include rising unemployment, slower production, and geopolitical uncertainties.

ECB Interest Rate Decision (Dec)

The ECB cut its key interest rates by 25 basis points, including the deposit facility rate, based on updated inflation forecasts and policy transmission effectiveness. Inflation is projected to average 2.4% in 2024, 2.1% in 2025, and stabilize around the 2% target by 2026-2027. Core inflation, excluding energy and food, is forecast at 2.9% in 2024, 2.3% in 2025, and 1.9% in 2026-2027.

Economic growth is expected at 0.7% in 2024, rising to 1.1% in 2025 and 1.4% in 2026, driven by higher real incomes and investment, with monetary policy effects gradually easing. Financing conditions are improving but remain tight. The ECB remains committed to a 2% inflation target, taking a data-driven approach to future rate decisions without committing to a specific path.

Initial Jobless Claims

For the week ending December 7, initial jobless claims rose by 17,000 to 242,000, with the prior week's claims revised up by 1,000 to 225,000. The 4-week average increased by 5,750 to 224,250.

For the week ending November 30, the insured unemployment rate stayed at 1.2%, while insured unemployment rose by 15,000 to 1,886,000. The 4-week average climbed by 3,500 to 1,888,000, the highest since November 2021.

PPI (MoM) (Nov)

The Producer Price Index (PPI) for final demand rose 0.4% in November, following increases of 0.3% in October and 0.2% in September. Over the 12 months ending in November, the unadjusted index increased 3.0%, the highest since February 2023's 4.7%.

Nearly 60% of November's rise was due to a 0.7% increase in final demand goods, while final demand services rose 0.2%. Excluding food, energy, and trade services, the index edged up 0.1% in November and 3.5% over the past year.

U.K. GDP (MoM) (Oct)

The UK economy grew 0.1% quarter-on-quarter in Q3 2024, down from 0.5% in Q2 and below the 0.2% forecast. Services rose 0.1%, driven by a 0.7% gain in professional activities and 0.6% in trade. Construction grew 0.8%, while production fell 0.2%, with a 2.7% drop in energy supply.

Net trade contributed positively, as exports fell 0.2% and imports dropped 1.5%. Household spending rose 0.5%, business investment increased 1.2%, and government consumption grew 0.6%, offset by declines in gross capital formation. Year-on-year, the economy grew 1%, up from 0.7% in Q2.

Currencies

The dollar index rose above 107, gaining 1% for the week, supported by stronger-than-expected November PPI data and expectations of global stimulus. Markets priced in a 25-basis point Fed rate cut next week, though 2025 remains uncertain. In Europe, the ECB cut rates by 25 basis points, while the euro and pound weakened against the dollar, with the latter hitting a six-month low after disappointing growth data.

China’s Central Economic Work Conference signaled expansive fiscal and monetary policies, including interest rate cuts and measures to boost domestic demand, but investors remain cautious as earlier initiatives have had limited impact. The offshore yuan was stable for the week.

The Australian dollar fell as unemployment dropped to 3.9%, beating expectations, and employment rose by 35,600, reducing February rate cut odds to 50% from 68%. The RBA held rates at 4.35% but leaned dovish.

The Swiss Franc weakened to 0.89 per USD after the SNB’s surprise 50-basis point cut, the largest in a decade, driven by falling inflation, which dropped from 1.1% in August to 0.7% in November. Swiss GDP growth remained weak in Q3.

Commodities

Gold rose nearly 1% this week as mixed U.S. inflation data and an encouraging Initial Jobless Claims report increased expectations of a December Fed rate cut, with a 93% chance of a 25-basis point cut, according to CBOT. Markets now await the Fed meeting on December 17-18 and Chair Powell's remarks on 2025 policy. Import Prices rose slightly, while Export Prices fell in November.

Silver dropped below $31 per ounce, down from last week's $32 high, pressured by weak Chinese demand despite dovish central bank actions. Concerns include China's yuan devaluation, loosening monetary policy, and solar panel industry overcapacity, which may limit silver demand.

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