USD: Short-term softness still in focus
Dollar pairs have held in tight ranges as the Thanksgiving break thinned activity. Volatility should remain limited, although the dollar continues to look vulnerable to a gradual move towards levels implied by short-term swap rates. Our fair value models still show modest dollar overvaluation against most G10 currencies, keeping the risk of a drift towards the 99.0 area in the DXY intact.
Geopolitical developments are being watched closely. Comments from President Putin hinted that the Geneva draft could eventually form the basis of negotiations, with US envoy Steve Witkoff set to visit Moscow next week. Expectations for progress may start to build, which could weigh on the dollar and favour higher-beta European currencies.
Risk appetite has firmed into month-end. US equities are finishing November strongly, supporting a softer dollar tone. The December meeting now becomes central, with a high probability of a cut priced in and the possibility of a close vote. Whether Chair Powell validates expectations for a terminal rate below 3 percent will be key for the next leg in the dollar. Meanwhile, jobless claims remain low, though affordability concerns, particularly in housing, continue to dominate broader macro discussions.
GBP: Relief rally meets familiar headwinds
Sterling’s rise following the Budget looks short-lived. With further Bank of England cuts expected, yield support is fading and limits the prospect of sustained strength. GBP/USD pushed above 1.32 on a more disciplined fiscal tone, though the restrained market reaction implies that much was already anticipated.
The consolidation plan remains heavily back-loaded, leaving execution risk front and centre. Rate expectations also cap upside, with traders looking for a December cut and another as early as May. Sterling struggled near its 200-day exponential moving average before easing back, highlighting the combined weight of policy expectations and technical resistance.
EUR: Still confined to trend despite mild support
The ECB’s October minutes revealed a widening split within the Governing Council on the inflation outlook, increasing speculation about the timing of future cuts. For now this has not shifted the immediate euro landscape, though it reinforces the sense that the next change in policy guidance could lean dovish if inflation continues to undershoot.
EUR/USD is set to finish the week slightly higher, supported by softer Fed expectations, yet remains locked within the downtrend that began in September. Spot still trades below long-term fair value estimates near 1.17, and a sustained recovery requires clearer signals from US data or confirmation of a December Fed cut. Flash CPI data from major eurozone economies today is unlikely to shift the broader narrative.
Looking ahead
The final month of the year will be driven by central bank decisions and US data. The dollar still looks prone to a gentle softening, sterling faces limits from domestic policy expectations and the euro requires a catalyst to break its trend. Geopolitical developments could influence moves, though markets remain cautious in pricing them.
