FOREX: Friday Focus on Post-BOJ Yen Weakness, DXY Touch Higher on Week

Reuters reports that the US has signalled to Ukrainian President Volodymyr Zelenskyy that Ukraine “must accept a US-drafted framework to end the war with Russia that proposes Kyiv giving up territory and some weapons,” two people familiar with the matter said, adding that Washington wants Kyiv to "accept the main points.”

• As noted in today's edition of the US Daily Brief, the White House likely believes that Zelenskyy will have to accept the plan on offer, drafted without Ukrainian input, due to increasing battlefield pressure and a growing domestic corruption scandal. Dasha Burns at Politico reported earlier that a senior White House official said a peace agreement between Russia and Ukraine could come as soon “as soon as this week” and likely by the end of the month.
• Christopher Miller at the Financial Times reports on X: “I can confirm a hasty US-Russia proposal being pushed to Ukrainians... It would amount to Ukraine’s capitulation, with people familiar telling me it’s merely the Kremlin’s maximalist demands.”
• According to Miller, the proposals include, “Ukraine army cut in half, Give up certain weapons, Give up Donbas.” He notes that sources say Zelenskyy is “displeased”.
• Yaroslav Trofimov at the Wall Street Journal reports that while Zelenskyy’s standing is “precarious" amid the corruption scandal, "the last thing Zelensky can afford politically at home is to agree to the concessions of the supposed Witkoff-Dmitriev plan, whatever they are. Being seen to buckle to Russian demands because his buddies were just caught stuffing their pockets would be political death.”

Business unit cost inflation expectations ebbed lower in the Atlanta Fed’s November survey, hitting it lowest since December, whilst realized own price setting reported its lowest for a quarterly question that started in late 2020. 

• The Atlanta Fed’s Business Inflation Expectations survey saw a small dip in year-ahead expectations for unit costs from 2.27% to 2.18% in November.
• This is the lowest since Dec 2024 having averaged 2.3% through Jul-Oct, whilst for context it peaked at 2.8% in April on tariff announcements and was a little below 2.0% pre-pandemic.  
• This month saw a return of the quarterly question on firms own price setting, with the average firm reporting a 3.1% price increase over the past year. That’s after 4.3% when asked in August and 3.9% in May, hitting its lowest since the question started in late 2020.
• Looking ahead, the average firm expected to increase prices by 3.0% over the year ahead vs 3.9% in August and 5.0% in May. That’s the lowest since mid-2021.
• The median response for price expectations held at 3.0% although has been at 3.0% for 7 of the past 10 quarterly surveys.  

• While market participants are likely trying to assess whether any surprises in Thursday’s NFP report might be viewed through a policy or growth lens, the ongoing concerns related to AI valuations and the associated shaky risk sentiment are likely providing the persistent safe haven bid for the greenback.
• Sure enough, the consistent declines for the likes of AUD and NZD today highlight this pessimistic backdrop as market participants await the release of Nvidia earnings after the close tonight. Overall, the short-term DXY uptrend remains intact, having been well supported by the 50-day EMA since early October. The index has notably risen back above the 100 mark, and hovers within 30 pips of the recovery highs at 100.36. A break above 100.48 (May 29 high) would be a broader bullish development for the dollar.
• NZDUSD continues to exhibit clear underperformance, with the pair falling over 1% and trading below 0.5600 in recent minutes, the lowest level for the pair since April. Support appears scant until the year’s lows at 0.5486.
• The adjustment for the likes of AUDUSD and GBPUSD are more in line with the 0.5% move for the DXY, keeping bearish threats intact for both pairs. For cable specifically, the bear trigger remains at 1.3010, the Nov 4 and 5 low, a level that will likely be in focus as the UK budget approaches.
• Importantly, dollar gains today have been broad based, with the advances of USDJPY (+0.71%) and USDCHF (0.61%) reflective of this dynamic. USDJPY has practically bridged the gap to meaningful resistance at 156.75, the Jan 23 high.
• The Japanese yen has been proving immune to the recent equity weakness and the more forceful verbal FX warnings from Japanese officials. Furthermore, the ongoing tensions between Japan/China, disappointing Q3 GDP data and fiscal related uncertainty continue to provide a pessimistic domestic backdrop.