Myrrh dollar gains to come?

Market reports
Thanim Islam
  • Dollar finishes with best day in November
  • November moves exhausted?

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November was a terrible month for USD, with the greenback dropping by 4% overall. However, on the last day of the month, the currency managed to show signs of a fight, having its best daily performance in November. The core PCE inflation number fell in line with expectations with no meaningful impact on the markets, but it was Fed Williams' hawkish comments that did. Williams stated that “not losing much sleep over market forecasts for cuts”, “rate cuts to depend on how economy, inflation evolve” and “if inflation pressures persist, we could hike again”, which caused 10-year treasury yields to rise by 8bps, USD to gain, and a drop in equities.

EU inflation came in lower than expected as well, but there was no stir in the markets as the damage was done to the EUR following the drops in inflation in Spain, Germany, and France in prior data. GBPEUR remains near 2-month highs.

BoE member Megan Greene was on the wires commenting that inflation risks in the UK continue to persist, and thus rates will need to be higher for longer.


Market rates

* Daily move - against G10 rates at 7:30am, 01.12.23

** Indicative rates - interbank rates at 7:30am, 01.12.23

Table - 2023-12-01T085651.327

Data points

Table - 2023-12-01T085653.470


  • None today.

Our thoughts

November was a month to remember with the Fed rate cut narrative taking centre stage, causing the USD to decline and a surge in risk appetite taking GBP and EUR indices to two-month highs. We said earlier this week that momentum behind these moves seems to be slowing, and price action on the last two days seems to provide some evidence of that. If rate cuts projected for the Fed have been priced too excessively then there is a chance that we could well see a correction of the November moves. Fed speak remains relatively split on rate policy, so we look to data over the coming weeks to see where the correct pricing for rate policy is. First major data point will be next week's job numbers, where currently markets are expecting 200,000 job additions in November (indicating a strong job market).

Looking to today we have second revisions of manufacturing PMIs from the UK, EU, and US and towards the end of the day we wait to hear from Fed chair Powell, who we expect to continue to push back against market rate cut expectations.

Chart of the day

The USD index had its best daily performance yesterday after a dismal overall performance over November, which is very interesting, boding the question, have the markets exhausted the USD selling price action? Fed Powell seems more than likely to push back against rate cut expectations in a speech this evening, but we look to job numbers next week and inflation the following week to see if whether USD will correct November's losses.

01122023 cotd
Source: Bloomberg Finance L.P.

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