DNA Markets - Daily Fundamental Analysis Report, 2 December

1. USD Outlook and Fed's Easing

• Fed Rate Cut Probability: Market participants have largely priced in an 85% chance of a 25 basis point Fed rate cut on December 10th.
• Liquidity Shift: The Federal Reserve has concluded its Quantitative Tightening (QT) program, potentially adding liquidity back into the financial system.
• Weak US Data: Persistent contraction in US manufacturing, alongside lingering tariff effects, supports the outlook for further monetary easing.

2. Yen and BOJ Tightening Pressure

• Yield Spike Concern: The Japanese 10-year government bond yield spiked to multi-decade highs, putting pressure on the Bank of Japan (BOJ).
• Policy Shift Signal: BOJ Governor Ueda's recent comments strongly signaled a potential policy rate hike at the December 19th meeting.
• Seasonal Downtrend: Renewed BOJ tightening hopes are aligning with December's historical weakness for the USD/JPY pair.

3. Eurozone Policy Divergence

• ECB Policy Stays Put: Recent ECB meeting minutes indicate policymakers see little urgency to adjust rates through 2026.
• Inflation Remains Mixed: Inflation reports show uneven pressure across the Eurozone, with Germany's rate accelerating but others remaining subdued.
• EUR Technical Strength: The EUR/USD pair is technically breaking out of a multi-month downtrend, supported by Fed easing expectations.

4. Commodity Currencies and China

• Risk-On Demand: The Australian and New Zealand Dollars showed strength last week, reacting to broader market sentiment shifts.
• China Demand Concerns: Weak economic indicators, including China's PMI hitting a 4-month low, remain a key headwind for commodity pairs.
• RBA Decision Looms: The Reserve Bank of Australia's (RBA) upcoming Monetary Policy Decision on December 9th is the next local catalyst.

5. Global Risk and Metal Surge

• Risk-Off Sentiment: Global risk-off sentiment has returned this week, marked by institutional selling and a decline in US equities.
• Precious Metal Rally: Gold and silver prices surged to record highs, driven by geopolitical tensions and expectations for US rate cuts.
• Fiscal Stability Risk: Elevated fiscal challenges and high public debt ratios in some advanced economies continue to pose a long-term risk to investor confidence.

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