USD: Pessim-ISM reins
US equities snapped a five‑day winning streak to start the week, with risk sentiment dented by signals from the Bank of Japan (BoJ) that it may raise rates. The prospect of BoJ tightening rippled through global markets, forcing investors to reassess Japan‑funded carry trades. Bonds underperformed, yields rose, and defensive flows were evident across assets: gold and silver extended rallies, crypto remained volatile, and the USD drifted lower after a lacklustre US PMI print.
Dollar weakness has been most pronounced against the yen, underscoring how BoJ policy expectations are reshaping FX flows. Political noise around the Fed chair succession added further uncertainty, with odds of Kevin Hassett’s appointment jumping to 73% from 36% last week. Markets see Hassett as more dovish and aligned with Trump’s preference for cuts, raising concerns about Fed independence and credibility. Soaring Japanese yields likely blunted what would otherwise have been a sharper Treasury rally on dovish recalibration.
Macro data reinforced the cautious tone. The US ISM Manufacturing PMI fell to a 4-month low in November and the ninth consecutive month of contraction – with employment sliding to 44.0 and input prices rising. The mix of labour softness and sticky inflation complicates the Fed’s policy calculus. Meanwhile, with the next official US jobs report delayed until after the December meeting, private labour surveys and PCE inflation data this week will carry outsized weight in shaping expectations.
Markets continue to price around 60bps of Fed easing by June 2026, but the trajectory could shift if upcoming data leans soft and Hassett is confirmed as chair. A dovish Fed outlook would stand in sharper contrast to peers, especially if the BoJ tightens later this month, adding further pressure on the dollar. For now, investors are hedging against policy uncertainty and bracing for the final stretch of US data before the Fed’s December meeting.
EUR: Euro buoyed by stability premium
EUR/USD climbed to a two‑week high yesterday at 1.1652, challenging its post-summer downtrend. It met resistance at 1.1650 before closing below the 50‑day moving average near 1.1620, dampening hopes of a more sustained advance and leaving the pair confined within its bearish structure, with the 50‑day MA acting as key resistance since mid‑October.
The euro was broadly bid, with ECB policy stability appearing attractive at a time when the policy outlook for majors such as USD and GBP remains in flux. The single currency weakened only against the yen, after BoJ Governor Ueda signaled that the bank will hike rates later this month. As global bonds sold off, euro‑area debt may have benefited from spillover demand, given the relative stability of the ECB’s policy path.
Additional momentum in EUR/USD came from weaker‑than‑expected US factory activity (ISM manufacturing headline PMI). Markets also absorbed the nomination of a likely dove as the next Fed chair. Given that recent dovish repricing had not moved the dollar significantly, the softer ISM print, combined with confirmation of a dovish‑leaning Fed president, helped solidify expectations for next week’s easing and beyond, pushing the dollar lower.
Eurozone CPI is due today. While it is expected to print in an orderly fashion, slightly above target at 2.1%, any undershoot would lend more directional weight to last week’s mixed single‑country releases. That said, unless there is a major sub‑2% miss, euro price action is unlikely to react meaningfully. Oh, and keep an eye on the bloc’s unemployment rate too!
GBP: Volatility compression
Sterling remains heavily undervalued against the euro when measured against the UK–German real rate differential – the persistence of a UK risk premium continues to weigh. Fiscal credibility has yet to be convincingly re‑established, and political uncertainty remains elevated. Meanwhile, the Bank of England is expected to deliver at least two rate cuts next year, with markets split on whether a third will follow — hardly a recipe for a structurally stronger pound.
Technically, GBP/EUR upside remains capped by the 50‑day moving average at €1.1428, which has acted as a stiff resistance barrier since mid‑June. The pound is still around 6% weaker versus the euro year‑to‑date and shows little sign of recovery. Even if a rebound were to materialise, it would likely be a slow‑burning process rather than a sharp reversal.
From a volatility perspective, the steady decline in monthly ranges over the past decade underscores reduced reactivity in the pair. Lower peaks in the 3‑month rolling average highlight how swings have become less pronounced, with 2025 ranges consistently below the long‑term 2.7% average (except April). This marks a shift from event‑driven volatility — Brexit, pandemic shocks — toward macro‑driven stability, where both currencies are influenced by similar global factors. Narrower ranges mean breakouts will require stronger catalysts, whether in the form of policy surprises or geopolitical developments.
Market snapshot
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: December 1-5
All times are in GMT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
