USD: Mixed signals from US data

Dollar trading has been steadier than many expected considering the week’s events. Minutes from the FOMC cooled expectations for a December cut, and the strong headline gain in US employment could have pushed EUR/USD through 1.1500. Instead, markets simply pushed back the timing of easing rather than scrapping it. Europe also appears to be holding up better than feared.

Yesterday’s reaction was revealing. A solid rise in headline US jobs and an increase in unemployment that reflected a larger labour force might normally have lifted the dollar. Instead, short dated US rates slipped by around five basis points and the dollar softened slightly. Positioning now looks more evenly balanced than over the past few months. The dollar also stayed on the back foot during the sharp intra day drop in US equities, which looked like fund managers trimming risk while liquidity remained deep following the Nvidia rally. The FOMC minutes highlighted how consumption has become increasingly reliant on a narrower group of wealthier households supported by equity market gains, which may have sharpened that reaction.

Expectations for the easing cycle remain intact. The market still sees the terminal rate near three percent next year, but now leans towards the next cut coming in January rather than December. Some investors are also keeping an eye on the debate over Fed independence. Betting markets currently see Kevin Hassett as the leading candidate for the next Chair. He is widely viewed as the most politically aligned choice in the field and stated yesterday that he would cut rates immediately if he were in charge.

Today brings S&P PMI readings, expected to be firm, alongside final November consumer sentiment. DXY is sitting at the high end of its five month range, with support from USD/JPY above 157. There is little to push DXY lower in the near term, although Japan’s authorities appear close to intervening, potentially with as much as one hundred billion dollars.

GBP: Sterling steadies after recent declines

Sterling gained across most pairs yesterday. Even though it is not a classic high beta currency, it often benefits when risk appetite improves, as seen in the brief lift following Nvidia’s results. This morning’s weaker performance against the yen and franc reflects a shift back towards caution.

With sterling under persistent pressure before the budget, quieter sessions tend to encourage profit taking while leaving the broader downtrend intact. That provided space for sellers to re establish positions at more attractive levels. Fresh data this morning supported their view. Retail sales excluding fuel fell one percent month on month compared with the expected half percent decline.

Even so, markets remain reluctant to fully price a cut. Probabilities continue to hover around eighty to ninety percent. This week’s softer inflation numbers did not deliver a definitive enough signal, particularly given how central inflation dynamics are for the Bank of England as it considers any quicker pace of easing. Investors are also weighing the growth impact of the forthcoming budget, which complicates how they interpret the recent run of softer data.

EUR: Euro holding its ground

EUR/USD has come through what could have been a challenging week. Attention today turns to the region’s flash PMIs. These have offered the euro some support recently by showing that business sentiment remains fairly constructive and that firms are adapting to the new tariff landscape. Export figures from Korea and Japan have also held up reasonably well, hinting at broader resilience. A solid PMI print today could give the euro a gentle lift.

The ECB’s survey of negotiated wages for the third quarter is also due. Forecasts point to an annualised quarterly rate of around two point four five percent compared with nearly four percent previously. This would be good news for policymakers, while also reminding investors that real wages are now rising. With savings levels still high, eurozone consumption could surprise on the stronger side in 2026.

Several central bank speakers are lined up, including President Lagarde at the Frankfurt European Banking Congress. The conference theme focuses on the advantages of investing in Europe, and references to the concept of a global euro are possible. Politico reported overnight that the ECB is considering expanding its EUREP repo lines to more non euro area central banks, in a bid to encourage euro invoicing and follow the renminbi model. A move back above 1.1560 to 1.1565 would mark a successful week for the currency pair.

Looking ahead

Markets remain sensitive to shifts in expectations for US policy and to any sign of intervention risk in USD/JPY. European data today will shape near term direction for EUR/USD, while sterling traders will continue to balance soft domestic indicators with uncertainty around the budget. Broadly, positioning appears more even across major currencies, which could keep swings contained unless the next data releases provide a clear catalyst.