USD – Soft Data Weighs on the Dollar
According to Challenger, Gray & Christmas, US companies announced 153,074 job cuts last month, led by the technology and warehousing sectors—almost triple the figure from a year earlier. The release prompted traders to trim US dollar exposure, sending the dollar index below the 100 mark. Rate cut expectations for December briefly climbed to 72% from 62% before easing slightly in early trading.
Dollar positioning remains heavily skewed toward strength in the second half of the year, making bearish corrections appear more justified, especially given the muted reaction to stronger ADP and ISM services data earlier in the week. With positioning built on limited hard data, soft economic releases are increasingly prone to trigger profit-taking. While a sustained move above 100 seems premature without a clear bullish catalyst, equally, sharp declines appear unlikely in the absence of strong downside drivers.
For now, consolidation near the upper end of the 99 range looks appropriate. However, as optimism over US–China trade progress fades, focus is shifting toward domestic political developments. With the government shutdown now the longest on record, rising political risk has begun to show in higher term premiums on 10-year yields—a dynamic that could push the dollar lower if no resolution emerges soon.
GBP – BoE Edges Closer to Easing
The Bank of England kept rates unchanged at 4% in a narrow 5–4 decision, with four policymakers voting for a cut. The shift from the previous 7–2 split signals growing willingness to ease in response to softer inflation and a cooling labour market. Sterling initially gained and gilt yields dipped on the announcement.
Governor Bailey adopted a cautious tone, noting that inflation fell to 3.8% in September—likely the peak—while wage-linked services inflation is expected to ease further. Still, he stressed the need for additional data before confirming a disinflation trend, as the latest figures alone are not decisive. Activity remains below potential and the labour market continues to soften.
With fiscal tightening anticipated in the November budget, downside pressure on both growth and inflation is likely to intensify. Market pricing now implies a roughly 70% chance of a December rate cut, up from 64–65% before the meeting. Sterling’s rebound across G10 peers appears largely technical, reflecting position-squaring rather than renewed optimism. Bailey’s data-dependent stance leaves the dovish bias intact, suggesting any further strength may offer better levels to re-establish short positions ahead of next week’s key UK data releases.
EUR – Modest Gains, Limited Momentum
The euro logged its largest daily advance against the dollar since late September, though the 0.5% move underscores how difficult sustained upside has been. Buyers defended the $1.14 level, eyeing a test of the 21-day moving average near $1.16, supported by a rebound in the relative strength index from near-oversold levels.
Recent data painted a mixed picture. French industrial and manufacturing PMIs beat expectations, while German industrial production and eurozone retail sales disappointed. As a result, euro price action remained contained, with investors still looking to US developments for broader direction.
EUR/USD continues to trade below levels implied by fundamentals—estimated near $1.17—leaving some room for recovery. The latest rebound was spurred by the surge in US layoff announcements, which weakened the dollar. However, further gains are likely to depend on continued softness in US data and a clearer signal from the Fed ahead of December’s policy meeting.
Looking Ahead
Attention now turns to next week’s data calendar: US CPI and retail sales, UK labour and inflation figures, and the final eurozone GDP read. With markets finely balanced on policy expectations, any meaningful deviation from forecasts could shift rate-cut probabilities quickly. For now, volatility remains contained but directional conviction across majors appears limited, keeping ranges tight and positioning reactive.
