FX Daily Overview – MUFG Research

Currency Movements and Economic Indicators

High-beta currencies like the Australian and New Zealand dollars saw significant gains overnight, buoyed by a resurgence in global investor confidence. The MSCI ACWI World Stock Index reached a new peak at the start of the year, following a consolidation phase since last fall. Additionally, copper prices, often seen as a gauge of global economic health, surged to a record high, surpassing USD 13,000 per tonne for the first time. This upward trend coincides with surprisingly positive global economic data, which has been the best since the first half of 2024. These indicators suggest stronger global growth, reinforcing predictions of further weakness for the US dollar in 2026. This comes even as President Trump’s One Big Beautiful Bill stimulus is anticipated to boost US economic performance in the early months of this year. Nevertheless, the release of December’s ISM manufacturing data indicated that business sentiment in manufacturing was worse than expected at the year’s end. This weaker performance likely played a role in the dollar’s decline yesterday, yet the outlook for robust US growth remains largely unchanged.

As market participants look ahead, they’ll be keeping a close eye on Friday’s non-farm payroll report to gauge the state of the US labor market. The results will help determine if the Fed might pursue further interest rate cuts this year. Recent trends show tentative improvement in private employment growth, with the three-month average rising from a low of 13,000 in August to 75,000 in November. However, the Fed continues to interpret this data as aligned with roughly flat job growth. Last year, Federal Reserve Chairman Jerome Powell noted that non-farm payrolls may have overestimated job creation by about 60,000 monthly. In anticipation of the upcoming payroll report, the US interest rate market is currently factoring in a slight rate cut of about 4 basis points at the next FOMC meeting in January and around 14 basis points by March. To prompt market participants to delay further rate cuts and bolster the dollar, private employment would need to exceed 100,000 per month.