Fed and BoE deliver rate cuts as expected, USD lower

* Stocks rise for a second day after election to more record highs

* The Fed cuts rates for second straight meeting to support the economy

* BoE lowers interest rates, warns price persistence could slow further moves

* Dollar reverses on profit taking and unwind of some Trump trades

FX: USD came up against resistance we highlighted yesterday. That is the minor Fib retracement level (78.6%) of the April to September down move that sits at 105.13. the Fed cut rates and made a minor tweak to its statement which was seen as mildly hawkish. The odds of another 25bps cut in December changed very modestly to roughly 71% from 69% before the meeting. Sellers were in force as the buck pared its losses post-election on profit taking. Powell said the election won’t impact Fed policy in the near term. CNN reported that Trump is likely to allow Powell to serve the remainder of his term as the Fed Chair.

EUR managed to climb above 1.08 but is the biggest major underperformer so far on the week. There are real concerns about the region’s lack of growth which could be made worse by Trump’s tariffs and trade barriers. The collapse of the governing parties in Germany is also not helping sentiment.

GBP moved higher as traders digested the expected 25bps rate cut by the BoE and also its response to the recent budget. Markets are pricing in less than 3 x 25bps cuts from here on. Lower services inflation was slightly downplayed by Governor Bailey and the fresh forecasts, while the budget is among a number of factors that will have some impact. Gradual rate cuts seem to be the order of the day again by the MPC, which should support the pound.

JPY turned lower as the US 10-year yield moved off its highs. The 61.8% Fib retracement of the July to September move is at 153.40. Widening interest rate differentials could put more pressure on the BoJ to raise rates to prevent the yen from falling closer to decade lows. We might also hear more from officials with verbal intervention.  

AUD outperformed its peers as the major got near to its 100-day SMA at 0.6690. The hawkish RBA is supporting the aussie. USD/CAD edged lower with eyes on jobs data later today.

US Stocks moved higher for a second day, but with mixed performance as tech led the way with record highs in the S&P 500 and Nasdaq. The S&P 500 settled 0.74% higher at 5,973. The tech-laden Nasdaq 100 added 1.54% to finish at 21,101. The Dow finished up flat at 43,729. Big tech powered ahead with Meta rising over 3.4% and Tesla building on post-election gains, adding around 18% in two days. A reversal in financials saw the Dow underperform. JP Morgan, American Express and Goldman Sachs saw declines between 2% and 4.8%. DJT (Trump Media & technology Group) tumbled 23%.

Asian stocks: Futures are mixed. Asian stocks were mildly better bid after the shock Trump victory as markets digested tariffs, geopolitics and China data. The ASX 200 ticked higher eventually as energy and tech trumped softness in defensives. The Nikkei 225 surged due to the weak yen before paring gains. The Hang Seng and Shanghai Composite ignored possible high tariffs from the next US administration. Export growth was good while traders were awaiting fresh fiscal stimulus.

Gold rebounded, taking back over half of its losses from Wednesday. The macro backdrop is likely to remain supportive for bullion. See below for more details.

Day Ahead – Canada Jobs

Analysts forecast roughly 39,000 jobs to be added and the unemployment rate to remain at 6.5%. The Bank of Canada’s recent October statement noted that the labour market remains soft with hiring modest. Population growth has continued to expand the labour force, though wages still remain elevated relative to productivity growth.

The bank cut rates by 50bps at the last meeting and essentially declared victory on inflation. That larger-than-usual cut was to stimulate growth with the BoC now focusing more on that side of the picture gas opposed to a focus on inflation. USD/CAD has very strong resistance around 1.3946.

Chart of the Day – Gold volatile and choppy since election

Gold has surged over 30% this year with a combination of drivers. Rate cut optimism has eased back recently, but its haven status amid heightened geopolitical tensions and the US election have helped. Ongoing central bank buying and solid Asian purhcases have also propelled bullion higher. Bullish bets from hedge funds – hovering around four-year highs, with gold-backed ETF holdings posting a fifth consecutive month of gains in October – have aslo boosted bugs. The US election is expected to bring a strogner dollar yields, which may not help the bulls. But fiscal and debt sustainability question plus foreign reserve diversifaction can underpin support.

After making new highs at $2790, prices tumbled after the election result back to the first minor retracement Fib level (23.6%) of the May to October move is at $2669. The 50-day SMA sits below at $2639 with the next Fib level (38.2%) at $2594.

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