USD: Safe-haven tone supports the greenback

The week has opened with a risk-off tone across global markets, driving renewed demand for the dollar as investors rotate back into defensive positions. Concerns over lofty tech valuations ahead of Nvidia’s results have pressured equities worldwide, and the breadth of the sell-off is reinforcing support for the dollar.

Short-end USD rates have also edged higher. Markets now price roughly 11bp of easing for December, down from around 15–16bp last week, reflecting a cautious tone from recent Fed communication. With the BLS scheduling September payrolls for release on Thursday, the impact of the forthcoming FOMC minutes may be limited. USD/JPY remains firm despite conditions that would normally favour a yen rebound, with Japan-China tensions and soft domestic data casting further doubt on a December BoJ hike. Meanwhile, speculative flows continue to probe the Ministry of Finance’s tolerance for further yen weakness.

The dollar is hovering near its 21-day moving average, struggling for direction in the absence of decisive data. Today’s focus falls on US industrial and manufacturing production, factory orders, and the newest ADP weekly jobs release.

GBP: Ongoing headwinds keep sterling vulnerable

Sterling remains weighed down by muted UK data, a dovish drift in Bank of England expectations and persistent political noise. Although EUR/GBP pulled back after touching year-to-date highs, the move appears mainly profit-taking and the broader bias still points to further sterling softness. A brief lift came from hawkish-tilting remarks by BoE policymaker Catherine Mann, who highlighted the UK’s exposure to repeated supply shocks and the lingering upward pressure they pose for inflation.

Cable continues to trade below its 21-day moving average, maintaining the downtrend. A break under 1.30 would likely require another leg of dollar strength, though softer US numbers could allow a temporary recovery towards 1.33. Sterling’s medium-term path is increasingly anchored to the Autumn Budget on 26 November, where credibility will be the key test. Options markets reflect the heightened uncertainty, with downside protection in GBP/USD growing progressively more expensive.

EUR: Range-bound ahead of US data catalysts

The euro held close to 1.16 against the dollar, lacking momentum for a sustained move higher without softer US data. The European Commission’s latest forecasts point to steady, moderate growth after the region weathered recent trade disruptions better than expected. The 2025 outlook was revised up, while 2026 saw only a small adjustment lower.

The release has done little to shift the narrative, which remains one of relative stability for the ECB compared with a more uncertain Fed trajectory. With that contrast still dominant, the dollar continues to drive EUR/USD direction. EUR/GBP slipped from last week’s highs, although the broader trend of sterling vulnerability remains intact.

Looking ahead

Our base case is that the dollar’s upside potential will fade once the US data cycle reasserts itself, likely restoring expectations for a December Fed cut. For now, sentiment remains fragile and the dollar may stay supported until risk markets show signs of stabilisation. Further clarity should come as this week’s US data releases help recalibrate expectations for the early-2026 rate path.