Euro Weakens Amid Rising Yields & Dollar Strength

The euro remains under pressure, pinned near a two-year low against the dollar, as strong US data fuels inflation worries and bolsters Treasury yields. European stocks face a subdued start, with tech shares likely weighed down by rising bond yields, while markets anticipate contrasting policy paths between the ECB and the Fed. Meanwhile, Meta Platforms has overhauled its political content moderation strategy ahead of President-elect Trump's administration.

Equities

The FTSE 100 slipped 0.1% on Tuesday, with banking stocks weighing on the index as investors anticipated global economic data to clarify monetary policy direction. The FTSE 250, more domestically focussed, fell 1.3% to hit a one-week low. Financial stocks led the declines, with HSBC down 1.1% and NatWest Group losing 3.5%.

British construction industry activity grew at its slowest pace in six months, and house prices unexpectedly fell for the first time since March. In contrast, clothing retailer Next rose 3.8% after upgrading its profit outlook for the fourth time in six months, citing strong Christmas sales. Investment platform AJ Bell dropped 6.6% after Citigroup downgraded its rating to "sell" from "neutral."

Across the Atlantic, US markets tumbled as strong economic data stoked concerns about inflation's impact on Federal Reserve rate policies. The Dow Jones Industrial Average fell 0.42%, the S&P 500 lost 1.11%, and the Nasdaq Composite dropped 1.89%.

Technology stocks were among the hardest hit, with Nvidia shares down 6.22% following broader concerns about rising Treasury yields, which reached their highest levels since April. Tesla shares fell 4% after a brokerage downgraded the stock to "neutral" from "buy," reflecting reduced optimism about its near-term prospects.

Micron Technology saw a 2.67% gain as Nvidia confirmed it would supply memory for its GeForce RTX 50 Blackwell gaming chips, highlighting continued strong demand in the gaming and AI markets. Citigroup rose 1.29%, bolstered by positive coverage from Truist Securities, while Bank of America gained 1.5% after receiving favourable ratings from multiple brokerages.

Forex & Commodities

The dollar traded near six-month highs against the yen at 158.19, as strong job openings and services sector data raised doubts about the pace of Federal Reserve rate cuts this year. The euro dipped 0.5% to $1.0351, while the Australian and New Zealand dollars hovered near multi-year lows at $0.6228 and $0.5634, respectively, pressured by weak economic conditions in both countries.

Gold prices edged lower, with spot gold down 0.2% at $2,645.64 per ounce as higher yields reduced the appeal of the non-yielding asset. US job openings rose to 8.098 million in November, exceeding expectations, and input price data suggested renewed inflationary pressures. Markets are now pricing in fewer rate cuts from the Fed in 2025, further bolstering the dollar’s strength. Meanwhile, China increased its gold reserves for a second consecutive month, adding to its holdings as the yuan slid to a six-month low of 7.3319 against the dollar.

Oil prices rose modestly, with Brent crude up 0.5% to $77.42 per barrel and West Texas Intermediate crude climbing 0.6% to $74.69. Tightened supplies from OPEC and Russia, coupled with stronger-than-expected US economic data, supported demand expectations. However, analysts predict Brent crude will average $76 per barrel in 2025, down from $80 in 2024, reflecting anticipated oversupply as non-OPEC production increases.