Sunset Market Commentary

Markets

EUR/USD is heading for an eighth consecutive daily trading gain. Unlike the minor improvements of the previous days, today’s move is worth the while. The pair is currently changing hands around 1.166 from a start at 1.1625 and testing first minor resistance at 1.1656 (November top). Modestly positive risk sentiment initially supported the move but dwindled as the US session developed. The US delegation is still in Russia to discuss the Ukrainian peace plan. The Kremlin said today that it wants to follow the silence principle as part of the talks, but also that it’s wrong to say that it rejected the plan all together. On a European level, the European Commission is preparing Trump-like tactics to assemble a €210b reparation loan for Ukraine, backed by immobilized Russian state assets. They look at invoking Article 122 of EU treaties which is an emergency legal basis for granting financial assistance on which the European Council can decide by qualified majority voting, sidestepping vetoes from for example Hungary or Belgium, and where European parliament is only informed and not a co-legislator. The commission also wants to extend the rollover period for sanctions from six months to three years to reduce the risk that assets would have to be transferred back to Russia if sanctions lapse. Apart from the constructive interpretation of these geopolitical developments, a cyclical element played as well in today’s EUR/USD move. The dollar lost interest rate support after the November ADP employment report showed 32k in job losses while consensus expected a small, 10k, gain. Since the month of June (-23k), ADP only reported job gains in the months of July and October with today’s print being the 2nd worse since June 2020. Companies with fewer than 50 employees shed 120k jobs, the largest one-month decline since May 2020. Wage growth cooled, with workers who changed jobs seeing a 6.3% increase in pay, the lowest since February 2021. The ADP report is only one of few up-to-date reports as US government agencies are still working their way through the shutdown delay. Official November payrolls and inflation reports will only be released after the December FOMC gathering. It’s nevertheless becoming clear that downside employment risks are gradually taking the upper hand, starting to build the case for more Fed rate cuts in Q1 2026 as well. Daily changes on the US yield curve range between -3 bps (5-yr) and -1.5 bp (30-yr) today. German yields only lose maximum 1 bp today. Sterling is slightly better bid (EUR/GBP 0.8770 from 0.8795) in a move that already started ahead of the upward revision to November PMI’s (composite 51.2 instead of 50.5).

News & Views

Swiss inflation fell by a more-than-expected 0.2% m/m in November. That dragged the annual figure from 0.1% to the zero bound of the Swiss National Bank’s 0-2% target range. The shrinking price level was a result of lower prices for hotel and international package holidays as well as new cars and fruiting vegetables, the statistical office’s press statement reads. Higher housing rental, heating oil and air transport inflation prevented an even lower outcome. Core inflation, 0.4% y/y, came in at the weakest since August 2021. The numbers make the SNB’s projected 0.4% average inflation for Q4 look infeasible, in theory supporting further monetary support. But policymakers have in the past said that the bar for further rate cuts is high, because that would bring it back to the era of negative rates which comes with all sorts of negative side effects. SNB officials have also stressed that brief periods of sub-zero inflation isn’t a problem as such. The SNB meets December 11 and money markets do not expect a move then (or later in 2026). The Swiss franc trades stoic around EUR/CHF 0.933.

The Indian rupee broke below the symbolically important 90 barrier against the USD today. The new record low for Asia’s worst performing currency was considered all but inevitable. Sentiment vs INR deteriorated sharply in recent weeks, amongst others due to the absence of a trade deal with the US. Negotiations are dragging and meanwhile a punitive 50% US import levy is smothering Indian exports. Combined with strong imports it’s pushing India’s trade deficit to a record high of >$40 bn in October, resulting in high dollar demand. The weak currency contrasts with India’s otherwise strong domestic economy (8.2% y/y in Q3). The absence of strong central bank intervention in addition is inviting speculative bets. The Reserve Bank of India meets this Friday. Consensus assumes a rate cut to 5.25% from 5.5% amid record low inflation but given recent INR weakness it may be a closer call than it appears.