Dollar Weakens Ahead of Expected Federal Reserve Rate Cut 
Asian Currencies Steady as Markets Await Fed Rate Decision; Indian Rupee Hits New Record Low 
European Stocks Rise as Markets Await Key U.S. Inflation Data 
RBI Cuts Repo Rate to 5.25% as Inflation Cools and Growth Outlook Strengthens 
Asian Markets Mixed as Fed Rate Cut Bets Grow and Japan’s Nikkei Leads Gains 
Gold Prices Steady as Markets Await Key U.S. Data and Expected Fed Rate Cut 
Europe Confronts Rising Competitive Pressure as China Accelerates Export-Led Growth 
Spain’s Industrial Output Records Steady Growth in October Amid Revised September Figures 
U.S. Futures Steady as Rate-Cut Bets Rise on Soft Labor Data 
Gold Prices Edge Higher as Markets Await Key U.S. PCE Inflation Data 
The EUR is expected to advance against the USD this year, while an increase in the EUR’s weighting could lead to a bigger rise in the CNY to ensure a steady yuan versus the basket, according to the latest research report from Scotiabank.
China’s factory activity expanded for the second straight month in December, with rising output sub-index and dipping new orders sub-index. The nation’s official manufacturing PMI came in unchanged at 50.2 in December, compared to market expectations for 50.1.
Further, the output sub-index rose to a 16-month high of 53.2, while the new orders sub-index dipped slightly to 51.2 from 51.3 in November. More importantly, easing trade tensions with the US lifted the new export orders sub-index above the 50 threshold for the first time since May 2018.
China is expected to implement more stimulus measures in addition to a 50 bp RRR cut effective from 6 January to further boost credit supply and revive economic growth, the report added.
Further reductions in the rate of the 7-day reverse repos, 1-year MLF and 1-year LPR would pull down the front-end CNY IRS/NDIRS, while steepening the curve in the run-up to the Chinese New Year (25 January).
On the FX side, the PBoC has been setting USD/CNY in line with market expectations since mid-October. The yuan is expected to advance moderately in the coming weeks, catching up with recent gains in regional peers such as the KRW and TWD.
"We maintain our short USD/CNH position amid sustained risk appetite arising from easing trade tensions with the US and the PBoC’s monetary easing measures," Scotiabank further commented in the report.
