US Economy Shows Strength Amid Key Data Week

The US economy continues to thrive, bolstered by a resilient labour market and robust consumer activity. In October, personal incomes rose by 0.6%, marking the largest increase in seven months. Additionally, initial jobless claims remain historically low at 213,000, providing a positive backdrop as the week unfolds.

Investors face a data-packed agenda, including the ISM Purchasing Manager Indices for manufacturing and services, the JOLTS job openings report, the ADP private employment report, initial jobless claims updates, and the highly anticipated US non-farm payrolls report. Adding to potential market volatility, a dozen Federal Reserve speakers, including Jerome Powell on Wednesday, are scheduled to share insights throughout the week.

Euro Faces Continued Pressure Amid Policy and Political Risks

Last week, the euro experienced a temporary reprieve as selling pressure eased. This was driven by hawkish comments from European Central Bank (ECB) policymakers countering expectations of a 50-basis-point rate cut in December, alongside softer US economic data and favourable month-end flows. As a result, EUR/USD posted its strongest weekly performance since early August. Despite this, the euro's outlook remains bleak. Whether the ECB opts for a 50-basis-point cut this month or later, the currency faces challenges. A cautious stance on easing could amplify concerns about rising yields in France's heavily indebted economy and Germany's economic fragility. Conversely, further rate cuts may widen interest rate differentials, exerting downward pressure on the euro.

Beyond ECB policy, the euro also faces risks from potential tariffs and Germany's upcoming elections. However, the most immediate threat comes from France. Marine Le Pen’s National Rally has issued an ultimatum on Prime Minister Michel Barnier's contentious 2025 budget. Without additional concessions, the party is prepared to back a vote of no confidence in the government as soon as Wednesday.

UK Economy Outperforms as Pound Gains Support

The UK economy continues to outpace much of Europe, with rising inflation prompting expectations that the Bank of England (BoE) will maintain higher interest rates than the European Central Bank (ECB). This policy divergence adds to the pound’s yield-driven appeal. Moreover, the Eurozone’s greater exposure to US tariff policies provides additional upside potential for the pound.

This week, attention will be on the BoE’s Decision Makers Panel, particularly insights into wage expectations and updates from the reweighting of Labour Force Survey data. Final November PMI readings will also be closely watched to confirm whether the sharp drop in sentiment seen in earlier data is sustained.