A look at the day ahead in U.S. and global markets by Amanda

Cooper.

The dollar's supremacy has been one of the big stories of

2024 and, based on U.S. President-elect Donald Trump's proposed

"America first" agenda that includes trade tariffs, this story

is likely to continue next year.

China's top brass are considering letting the yuan currency

weaken in 2025 to act as a shock absorber to the higher tariffs

that a second Trump presidency could bring.

People with knowledge of the matter have told Reuters the

idea reflects Beijing's recognition that it needs bigger

stimulus to protect against the possible impact of hefty duties

on its exports.

Trump has said he's planning a 10% universal import tariff

and a 60% duty on Chinese imports into the United States. A

weaker yuan appeared almost inevitable anyway, but Trump has

been vocal in the past about the unfair advantage some countries

have in being able to depress the value of their currencies.

In theory, Beijing would have to strike a delicate balance

between letting the yuan depreciate enough to neutralise some of

the impact of tariffs, but not so much that it triggers a

full-on currency war.

More immediately, however, markets are almost certain the

Federal Reserve will cut rates by a quarter point next week.

There's just one piece missing from the puzzle to seal the deal

- consumer inflation. The November consumer price index (CPI) is

due out later today and is expected to show a monthly 0.3%

increase for both the headline and core figures, according to a

Reuters poll of analysts. The highest forecast in the poll was

0.3%, so no one is expecting a bombshell, but there is also

plenty of room for surprise.

A number of things beyond the energy sector - where natural

gas prices soared 25% last month - picked up in price. Used

cars, as tracked by Manheim, staged their biggest monthly rise

since July in November, up 1.3%. The Federal Reserve Bank of

Cleveland flagged a few weeks ago that rent inflation was

unlikely to fall back towards pre-pandemic levels until 2026.

Service-sector inflation, as measured by the Institute for

Supply Management's (ISM) non-manufacturing survey, barely

budged in November, while wage inflation is running at 4%.

Fed policymakers are confident inflation, which is running

at 2.6% on a headline basis and 3.3% on a core basis, will

return to their 2% target reasonably soon. But consumers, who

are paying more for their rent, their used cars and their

groceries, are not so sure. Unsurprisingly, inflation proved to

be a major issue for voters in the November election.

The University of Michigan's survey of consumer expectations

for inflation in the next year gives a forecast of 2.6% - right

where it is now and a forecast of 3.2% in five years. In real

terms, wages are rising at a rate of just 1.4%, well below the

rate of essentials like food and drink, which are up 2.1%.

North of the border, the Bank of Canada is widely expected

to cut rates by half a point at its meeting later in the day. A

shock rise in the unemployment rate in November prompted traders

to up their bets on an outsized drop in rates.

Some economists have expressed concern that the BoC risks

being overly aggressive with a 50-basis point cut, especially as

many other data points paint a picture of a fairly resilient

economy. The big question mark, inevitably, is the extent to

which the Canadian economy will suffer if Trump delivers on his

threat to slap a 25% tariff on imports from its neighbour.

Key developments that should provide more direction to U.S.

markets later on Wednesday:

* U.S. November consumer price index

* Bank of Canada rate decision

* U.S. 10-year Treasury note auction