The super dollar reaffirms its strength and China’s momentum fades

Driven by a spike in US Treasury yields, the dollar regained strength ahead of a series of overseas interest rate cuts this week, with China markets giving a somewhat hesitant welcome to Beijing’s new policy direction.

As Treasury debt sales resume strongly on Tuesday and Wednesday’s consumer price inflation report is awaited, yields 10 years have once again exceeded 4.2%.

This follows a three-week drop of more than 30 basis points from post-election highs and a drop in bond volatility gauges (.MOVE), which hit their lowest levels in more than two years.

Basis for returns helped drive to the dollar (.DXY), especially against currencies that will face another round of monetary easing this week.

Currency basket

The dollar hit its highest level against the Canadian dollar since April 2020, as traders wonder whether the Bank of Canada will cut its main interest rate in 50 basis points more on Wednesdayespecially after the US president-elect’s tariff threats, donald trumpwill affect the feeling there.

However, with the European Central Bank and Swiss National Bank also expected to cut rates again this week, the euro and Swiss franc also came under pressure again. Although the Reserve Bank of Australia maintained its stance overnight, there were enough dovish signals there to drag the Australian dollar lower as well.

In China, The overall market reaction to the Politburo’s historic change in monetary and fiscal guidance on Monday was somewhat disappointingin part because the latest economic reports show how urgent the need for more stimulus is.

China’s exports slowed sharply and imports unexpectedly fell in November, another worrying sign for the world’s second-largest economy, as Trump’s imminent return to the White House brings new trade risks.

Although markets were recently encouraged by surveys showing manufacturing sentiment at its best level in seven months, they also warned they were receiving fewer export orders.

All of this follows new price data this week showing the country is still facing potential deflation across the board.

Monday’s late announcement of the new political direction had lifted Hong Kong stocks (.HSI) more than 2%, but they fell about 0.5% today. Mainland Chinese indices (.CSI300) were already closed when Monday’s reports came in, but are up less than 1% today.

Chinese 10-year government bond yields hit new record lows below 1.9%, but the offshore yuan remained stable.

More broadly, worrying China trade numbers dragged oil prices down, and basic resource stocks (.SXPP) led European indices lower as well.

Meanwhile, continued political tensions in South Korea caused the won to fall again, even though the KOSPI stock index (.KS11) rallied around 2%.

South Korea’s opposition-controlled parliament passed a 2025 government budget bill on Tuesday, which was trimmed from the original proposal and triggered President Yoon Suk Yeol’s short-lived martial law decree last week.

The Indian rupee fell to a record low and government bond yields fell on Tuesday, as the appointment of career bureaucrat Sanjay Malhotra as the next governor of the Reserve Bank of India prompted traders to bet more on rate cuts.

In Brazil, there may be some anxiety about the health of President Luiz Inácio Lula da Silva, who underwent overnight surgery in Sao Paulo to drain a brain hemorrhage linked to a fall at home in October. The surgery was successful and Lula, 79, is “doing well” and is being monitored in the intensive care unit, doctors said.

Back on Wall Street, the CPI wait and a three-year Treasury sell-off are accompanied by the latest NFIB small business survey, which should give an idea of ​​post-election sentiment.

Federal Reserve futures still price in a 90% chance of another rate cut next week, while stock futures held steady despite Monday’s modest pullback from new highs.