USD: Markets eye holiday calm on Fed pivot
While the US Dollar has maintained its strength on a safe-haven bid, we appear to be hitting a technical ceiling; without significantly stronger economic data, the DXY resistance at 100.3 is likely to hold, signaling that the “greenback trade” may be running on fumes. Will we see the Q3 preliminary GDP released this week? It appears that the BEA will reschedule it.
The real drama, however, is unfolding at the Federal Reserve. Division among policymakers has intensified ahead of the December meeting, creating a clouded outlook until New York Fed President John Williams effectively stepped in to “save the day.” Williams’ pivot toward highlighting rising employment risks and easing inflation was the catalyst investors needed. Swaps markets are now aggressively pricing in an 80% probability of a cut, suggesting the “higher for longer” narrative may be crumbling.
This dovish shift provides a perfect backdrop for the shortened Thanksgiving week. US stocks are entering the holiday in an oversold state, and with volatility likely to fade, the conditions are ripe for a rebound characterized by broader participation rather than narrow leadership. However, investors must ask if they are worried about the wrong tail risk. While the Fed dominates the macro headlines, anxiety has been building around corporate balance sheets, specifically, whether the AI boom is transitioning from a period of explosive discovery to one of diminishing returns.
The “AI as the new Internet” argument is still compelling, particularly when you look at the sheer cash generation; the “Magnificent 7” pulling in over $2 trillion annually with $57 billion in quarterly revenue is fundamentally different from the revenue-light speculation of the late 1990s DotCom era. However, the rate of investment is raising alarm bells. For the first time in 20 years, the Bank of America Global Fund Manager Survey reports that investors believe companies are spending too much on CapEx rather than shoring up balance sheets. Markets are effectively staring at a $500 billion expenditure expectations gap, begging the question: will these investments payoff to the tune of $650 billion in new revenues by 2030, or are we witnessing massive malinvestment?
We are already seeing the market punishing those on the wrong side of this efficiency curve. The rising tide is no longer lifting all boats, as there’s a stark divergence in the hyperscaler complex (e.g., Google up +54% over the last 3 months, while Meta and Oracle have shed ~18% and ~15% respectively). The market is attempting to discern winners from losers based on capital efficiency, with a specific distaste for companies like Meta and Oracle that may rely on credit issuance to fund their AI ambitions. As we move toward 2026, the narrative is shifting from “buy everything AI” to a forensic audit of CapEx ROI.
GBP: Sterling volatility climbs into Budget risk
GBP/USD has fallen roughly 2.5% so far this quarter, struggling to regain the $1.34–$1.37 range seen earlier in the year. Renewed demand for the dollar has been the primary driver, but sterling’s weakness also reflects a softer UK economic backdrop and the elevated political risk premium now embedded in its valuation.
While US developments remain the dominant influence on the pair, immediate attention is turning to the UK Budget, scheduled for release around midday tomorrow (Wednesday). Anticipation of fiscal headlines has already lifted options pricing to levels exceeding those seen ahead of last year’s Budget. GBP/USD overnight volatility has surged to its highest in more than six months, and the broader cost of hedging sterling swings against major peers has climbed to multi‑month highs too. Markets are clearly bracing for heightened turbulence.
For GBP/USD specifically, though, implied overnight moves of around 0.75% in either direction suggest the spot rate could stay afloat the psychologically important $1.30 threshold. Ultimately, the credibility and tone of Chancellor Reeves’ Budget delivery may prove the decisive factor in whether sterling stabilises or succumbs to further downside pressure.
Whether sterling rebounds or sells off with gilts depends heavily on whether investors choose to maintain the risk premium in UK assets. If Chancellor Rachel Reeves can present credible fiscal measures that raise revenue without sparking a backlash from Labour backbenchers, some of that premium may compress, though it is unlikely to disappear altogether.
Beyond fiscal credibility, the inflationary consequences of the Budget will be critical. Any shift in the outlook for price pressures will shape expectations for the Bank of England’s policy response, ensuring that monetary considerations remain a key determinant of sterling’s path in the months ahead.
Meanwhile, Germany’s Ifo business sentiment indicator disappointed, with the expectations component dragging the overall index lower. The Ifo index came in at 88.1 in November, down from 88.4. The worsened outlook stands out as an outlier given recent improvement in sentiment indicators across the wider bloc. Fading hopes of the much‑awaited spending promises announced earlier in the year certainly play a role, with growing realisation that a structurally paralysed German government may fail to deliver – at least not yet. This morning, the country confirmed no growth in Q3, with second estimates flat and just inches away from a technical recession after Q2 recorded -0.2%.
The euro, however, was unshaken. For now, markets appear more focused on the potential resurgence of political turmoil in France, which looms as a nearer threat to the single currency after Saturday’s rejection by the National Assembly of key aspects of the proposed budget. The French National Assembly has overwhelmingly rejected the income provisions of the proposed 2026 budget, delivering a major setback to the government’s efforts to reach a deficit‑cutting deal amid an already deeply divided political climate.
CAD: Cost efficiencies mask tariff pain in Q3 profits
According to Statistics Canada, the strong corporate operating profit of $200.0 billion in the third quarter of 2025, despite the ongoing tariff war with the US, is largely a story of sector divergence rather than broad-based economic invincibility. The headline growth is heavily skewed by the financial sector, which posted a $5.4 billion increase. This sector is naturally more “sheltered” from direct border tariffs on physical goods compared to industrial sectors. Banks and insurers benefited significantly from lower provisions for credit losses and strong investment returns, effectively masking the deeper cracks forming in trade-exposed parts of the economy.
Trade-sensitive sectors are bearing the brunt of the impact, while others are insulated or even benefiting from unique dynamics. The construction and transportation industries, both highly sensitive to supply chains and cross-border flow, saw profits decline by 4.4% and 5.9% respectively, directly citing “tariff pressures” and rising input costs. Conversely, the mining and oil and gas sectors were buoyed by global commodity prices (like record gold and crude oil production), which often operate independently of bilateral trade disputes. Interestingly, the tourism sector actually benefited from the trade tension; record domestic travel suggests Canadians chose to vacation within provinces rather than cross the border, redirecting spending back into the local economy.
Cost-cutting is a significant factor of increased operating profits, particularly in manufacturing. While manufacturing profits rose, Statistics Canada notes this wasn’t necessarily due to booming demand across the board, but partly due to “cost efficiencies.” For example, the auto industry saw a profit jump driven by “lower operating expenses,” which were the result of workforce adjustments and temporary production shutdowns to manage inventory of electric vehicles. This indicates that for some industries, “growth” on the balance sheet is currently coming from tightening belts and managing output rather than purely selling more goods to the US.
In FX, markets are starting the week quietly, with the USD/CAD lingering above $1.41. Although the equity “fear index” has shown improvement in the US equity market, dropping sharply from 27 to 20, underlying uncertainty persists. This sentiment is sufficient to keep the US Dollar’s recent 0.5% five-day gain intact, consequently holding the Canadian Dollar near the ceiling of its half-year trading range ahead of the key Q3 GDP print this Friday.
EUR: Short‑term euro bid, long‑term risk
The euro stayed bid yesterday across G10 peers as cautious optimism lingered around peace talks between Ukraine and Russia. Cautious is indeed the right word, as the two countries exchanged fire with heavy air raids on Kyiv and assaults on southern Ukrainian areas just hours after President Trump struck a positive tone on prospects for a ceasefire deal. We have been here again and again, but talks alone appear to be supportive of the euro nonetheless.
The link to a stronger currency comes via the terms of trade – the ratio between the eurozone’s export and import prices. As a net importer of oil, declining prices – with Brent crude now around $63 per barrel and ~16% lower year‑to‑date – improve the eurozone’s terms of trade, in turn bolstering the currency. It may also be that, as backlogged US government data releases remain patchy, geopolitics is taking on a louder voice in FX markets.
Falling oil prices, however, also feed into broader downside risks tied to disinflationary pressures in the eurozone – an issue that has remained top of mind for the ECB despite its now familiar “we’re in a good place” mantra. Coupled with dampened demand from tariffs, a stronger euro, and weakening wage‑growth pressures (last week’s Q3 y/y figures undershot estimates quite notably), lower oil prices can contribute to softer inflation and, as a result, raise the possibility of further ECB easing, however hard that may be to imagine at present. This scenario poses a downside risk for the euro.
GBP takes a breather ahead of Budget
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: November 24-28
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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.
