• Dollar pulls back from 7-month highs The dollar dropped sharply against its peers on Thursday, after surging earlier this week to a 7-month peak. The dollar index pulled back from a peak of just below 100 to around 98.80, only to bounce up slightly above 99. We believe that profit-taking and repositioning are the main forces behind the moves, as the fundamentals are still in place and point to a December Fed rate lift-off. As a result, we would expect the dollar to regain momentum and appreciate against its peers in the next few days. The recent weakness in USD could provide renewed buying opportunities, especially against EUR as expectations for further easing by the ECB at its December meeting are still intact. Therefore, the widening monetary policy outlooks between the ECB and the Fed is likely to weigh again on EUR/USD in the not-too-distant future.
• China’s central bank cut short-term rates China’s central bank made another attempt to reduce rates banks charge businesses and consumers, in a fresh move to counter deflationary pressure and boost its economy. The reduction is just one of many measures the PBoC has taken in the past year to try to support the country’s economic growth. The Bank has cut its benchmark lending rate six times in a year in order to deal with China’s economic slowdown. However, those cuts applied to large state-owned banks that lend mostly to large companies, not to small businesses that could generate most of China's new jobs. In the meantime, the unexpected cut in the short-term lending facility increased the likelihood for further easing, possibly as soon as this weekend. The prospect for further easing supports risk appetite, thus we could see AUD and NZD continuing higher, at least temporarily.
• Today’s highlights: There is little in the way of new or market-moving data during the European session, with the only noteworthy release being the German PPI for October. In the event, the figure fell at an accelerating pace from the previous month, missing expectations of a slower decline.
• In Canada, we get the CPI data for October. The headline CPI is expected to have risen 1.0% yoy, at the same pace as in September, while the core rate, which excludes the effects of volatile items, is expected to have declined to 2.0% yoy from 2.1% yoy. Coming on top of the renewed plunge in oil prices, another disappointment in the CPI data could weaken CAD further. At its last policy meeting, the Bank of Canada warned that lower prices for oil and other commodities will weigh more than expected on Canada’s economy. However, a possible decline in the core inflation rate could reveal that energy prices are not the only reason. This alongside the Bank’s preference for a weaker loonie could eventually prompt officials to lower rates in the foreseeable future. The country’s retail sales for September are also coming out.
• As for speakers, ECB President Mario Draghi, Vice President Vitor Costancio, Executive Board members Benoit Coeure and Peter Praet, as well as Governing Council member Jens Weidmann speak. From the Fed, St Louis Fed President James Bullard and New York Fed President William Dudley speak.