FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

A look at the day ahead in European and global markets from Tom Westbrook

As markets settled in for the U.S. Thanksgiving lull on Thursday, the dollar was drifting towards its largest weekly decline in at least four months and traders' thoughts were turning to 2026. [FRX/]

It seems the rest of the world is finishing up with interest rate cuts just as the U.S. eyes further easing.

South Korea was the latest to join the hawkish turn, dropping its easing bias and sending bonds tumbling. [.KS]

One-time Bank of Japan dove Asahi Noguchi also struck a mildly hawkish tone, advocating gradual hikes in a speech at Kyushu that followed a similar line to other BOJ policymakers.

A day earlier, the Reserve Bank of New Zealand effectively called time on its cutting cycle and the kiwi was still gaining on Thursday.

It is up nearly 2% since the policy meeting.

European Central Bank minutes are due later on Thursday from October's meeting where policymakers left rates on hold.

Confidence data is due in Europe and commodity markets are watching for progress to a Ukraine peace deal. Russia has ruled out any big concessions following the leak of a call between a senior Kremlin aide and U.S. envoy Steve Witkoff.

Markets still have about 90 basis points of U.S. rate cuts priced in between now and the end of 2026 - against 75 bps of hikes in Japan and 40 in New Zealand. The U.S. dollar index is down about 1% from a six-month high hit last week.

To be sure, rates are much lower in New Zealand and Japan than they are in the U.S., but currency markets are forward-looking and the direction of travel can drive exchange rates as investors look for the best yield.

Traders have been chatting about the Aussie as a potential breakout. After a hotter-than-expected inflation print on Wednesday, Australian 3-year and 10-year rates are the highest in the G10.

Yet the Aussie is trundling along in a channel it's held for 18 months. Perhaps a lurch higher in the yuan, which it tracks closely, can unshackle the currency. [CNY/]

Stock and bond markets are closed in the U.S. and trade for a half-day on Friday.

Key developments that could influence markets on Thursday:

-U.S. Thanksgiving holiday

-Euro zone consumer confidence, ECB minutes

(Reporting by Tom Westbrook; Editing by Kate Mayberry)