USD: A tight Fed vote coming
As November draws to a close, markets appear to be catching their breath. Equities are finishing the month on a strong note: the S&P 500 posted a 3% gain for the week, its best Thanksgiving performance since 2012, while the Nasdaq Composite surged more than 5%. Even Bitcoin joined the rally, breaking above $90,000. With panic mode subsiding, the U.S. dollar has retreated from recent highs, reinforcing the sense that the past two weeks acted as a classic safety valve. For now, the ‘AI bubble’s fears have subsided.
The second major narrative shaping markets is the shifting outlook for the Federal Reserve. This week delivered mixed macro signals. The Fed’s latest Beige Book pointed to a softening labor market and an uneven, “K-shaped” economy, hardly a backdrop that would compel policymakers to push back against the market’s increasingly dovish expectations.
Looking ahead to December, the stage is set for a potentially dramatic meeting. Swaps markets are pricing in a 90% chance of a rate cut, but don’t expect a quiet meeting. A razor-thin vote, perhaps 7-5, could emerge as the committee wrestles with balancing a weakening labor market against stubborn inflation.
The real question: will Chair Powell validate the market’s hunt for a terminal rate below 3%? If he does, the dollar could have room to slide as rate differentials compress, potentially eroding the post-summer resilience of the U.S. dollar index and nudging it toward a more fundamental alignment. However, it’s key to note that while markets repeatedly priced in a rapid Fed policy shift this second half, the U.S. dollar still held up within its 6-month trading range.
Paradoxically, the latest data only adds to the complexity. With the government is fully operational again, and data collection is underway, last week’s jobless claims came in at 216,000, one of the lowest readings this year. In any other cycle, this would be the “desert-island indicator” screaming economic strength. Yet today, it’s largely ignored because it doesn’t fit the prevailing narrative of a deteriorating labor market that justifies rate cuts. Instead, financial media has shifted its spotlight to other stress points, such as affordability concerns, leaving this report to gather dust.
The affordability debate is loudest in housing, where the disconnect is striking. While home prices have eased slightly from record highs in major cities, the Atlanta Fed estimates home median prices have still climbed more than 30% since 2021 to nearly $400,000. To comfortably afford that, a household needs an income north of $120,000, yet the median sits at just $85,000. It paints a picture of an economy that defies easy interpretation: relatively resilient on paper if you look at jobs, punishing on the wallet if you look at homes.
GBP: Budget bounce but no breakout
Sterling’s post‑Budget rise has the hallmarks of a relief rally rather than the start of a sustained trend. With further Bank of England rate cuts looming, the pound’s yield support is set to diminish, capping upside in the near term. While cheaper borrowing costs could eventually help revive growth and sentiment, the immediate backdrop points to a short‑lived GBP bounce rather than a durable breakout.
GBP/USD pushed above $1.32 as investors broadly welcomed the Budget’s signal of a more disciplined borrowing path. But, the muted overall market reaction suggested much of the fiscal package had already been discounted and sterling’s gains likely also reflected the unwinding of pre‑event hedges.
The government avoided delivering either major upside surprises or damaging missteps, which in itself provided a measure of relief. Yet caution is warranted: the consolidation plan is heavily back‑loaded, meaning credibility hinges on execution and on the economy tracking the OBR’s relatively optimistic projections. Any material undershoot would expose the fiscal arithmetic and could quickly erode investor confidence.
Moreover, given traders are still leaning toward a December BoE cut and having pulled forward expectations for a second move to May from June, sterling’s yield advantage continues to erode, limiting scope for sustained gains. Upside momentum in GBP/USD stalled on Thursday as the pair met resistance at its 200‑day exponential moving average near $1.3270 (a 1-month high), before slipping back toward $1.32. The combination of dovish repricing and technical barriers suggests sterling’s rally is running into headwinds, reinforcing the view that near‑term strength remains tactical rather than structural.
EUR: Division clouds, downtrend holds
Yesterday saw the release of the ECB’s October minutes, which highlighted growing divergence within the board’s outlook on inflation. Recall that the September minutes had already revealed inflation was a contested topic, with some members more inclined to cut on the basis of inflation undershooting target. The division raises expectations over whether the ECB may cut sooner than markets currently project.
On the geopolitical front, Russian President Putin signaled openness to the US‑brokered peace plan, commenting that the proposals could serve as a basis for future agreements, though no final version appears ready. US presidential envoy Steve Witkoff is set to visit Moscow next week to continue negotiations.
Such developments remain too far into the future, however, to influence the euro’s price action for now. EUR/USD aims to close the week 0.6% higher, supported by a mild crystallization of dovish Fed expectations that weighed on the dollar. Yet amid a still‑unclear US macro backdrop, EUR/USD is unlikely to break out of the downtrend it has followed since hitting year‑to‑date highs in September. Respect for the downtrend also explains the undervaluation of EUR/USD spot relative to its long‑term fair value (pointing to lows near 1.17). For mean reversion – EUR/USD realigning with its fair value – more US data remains crucial. In the meantime, the pair continues to observe the recent technical downtrend setup. Resistance at 1.1620/25, therefore, looks unreachable this week, with Thanksgiving‑quiet US markets providing no impetus.
Market snapshot
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: November 24-28
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.
