USD Index flows: Fed Q1 Pause and AI & Equities
USD continues to be firm in NY, especially against the JPY.
The November U.S. industrial production data provided little impulse, with a 0.2% outcome versus 0.1% expectations. The better than expected Q3 U.S. GDP has prompted a USD bounce in NY trading, with the outcome increasing traders view that the Fed will be on hold for Q1 2026 -- 1st 25bps cut not discounted until June 2026. The JPY has lost the most ground, which is a partial unwind of Tuesday’s Asia move.
Meanwhile, traders are looking forward to 2026 and the risk on U.S. equity view supporting the USD through the holiday period. Traders feel one key test for 2026 is whether AI application revenue can go exponential or not, which can impact the emerging divergence in AI bets between those with heavy internal cashflow (e.g. Microsoft/Alphabet) and external finance (e.g. Oracle/Open AI). In turn this could impact USD portfolio inflows.