Key Takeaways
- October payrolls support the dollar with a rise of 165,000 jobs and a drop in unemployment to 4.1%.
- The euro remains in a tight range against the dollar, with US inflation the key catalyst for the next move.
- Sterling’s carry appeal remains supportive, but crowded positioning and fading scope for further BoE repricing may limit upside.
USD: Payrolls restore dollar support but upside narrows
October payrolls gave the dollar a firmer footing after its post-midterm decline. Employment rose by 165,000, more than double the 70,000 consensus. Unemployment fell to 4.1%, while wage growth accelerated to 3.1%. Revisions added another 84,000 jobs to the previous two months, making September’s weakness look temporary.
Hiring also broadened into management, scientific and technical consulting. That suggests the AI investment cycle is supporting white-collar implementation roles, not just construction and manufacturing. Large technology companies also show little sign of a broad pullback in spending. Power costs, infrastructure bottlenecks and political resistance may delay some projects, but the wider investment cycle remains intact.
Markets lifted the probability of a December Federal Reserve hike to roughly 80%. The dollar also retains a sizeable rate advantage. Two-year Treasury yields near 4.52% stand about 152 basis points above their Canadian and German equivalents. Those gaps make it harder to hold short-dollar positions while December tightening remains the base case.
The trading setup is less clear-cut than the macro picture. Speculators hold about 14,000 net-long DXY futures contracts, placing positioning near the upper end of its one-year range but below the annual peak. The dollar is also elevated on a broad, inflation-adjusted trade-weighted basis. That does not prevent further gains, but it means strong data may simply preserve support unless Fed pricing and relative yields move materially higher. DXY has reclaimed its 20-day moving average, with resistance near 102.5.
Tuesday’s CPI report is the next test. Headline and core prices are expected to rise 0.3% on the month. A firm reading would reinforce the case for December and bring the October DXY high back into focus. Softer inflation could contain the index below 102.5, but one benign report is unlikely to erase December pricing after the payroll surprise.
EUR: EUR/USD range holds, CPI looms
The euro has started the week on a relatively calm footing. EUR/NZD stands out as an exception, down 0.6% at the time of writing.
The National-led bloc is emerging as the most likely winner of the New Zealand’s upcoming election. The bloc is associated with a tighter monetary policy stance, in contrast to Labour, which is generally seen as favouring a more accommodative approach.
Barring a surprise Labour victory, the result should reinforce resistance in EUR/NZD near 2.01, a level that has repeatedly capped the pair in recent months.
Elsewhere, the euro appears to be paring back some of its losses against the dollar as risk sentiment linked to recent AI-related concerns stabilises.
EUR/USD remains trapped in a tight 1.1150-1.1250 range that has held for several weeks. From AI-driven growth concerns to falling oil prices, the factors supporting a hawkish Federal Reserve narrative have faded, preventing deeper losses in the pair.
Last week’s blowout NFP report helped rekindle the hawkish Fed story, although markets still stop short of fully pricing a December hike, with implied odds around 80%.
That suggests inflation remains the key catalyst. With geopolitical tensions showing signs of de-escalation and oil prices retreating, investors appear content to wait for this week’s October CPI report before declaring a December hike a done deal.
A hotter-than-expected US inflation print this week should open the door to a retest of the 29 October low at 1.1105.
GBP: Carry appeal but crowded trade
Sterling starts the week with a broadly constructive domestic backdrop after last week’s hawkish BoE hike reinforced the pound’s relative rate appeal. However, price action remains heavily influenced by global risk conditions as evidenced by GBP/USD’s fall from 1.35 to below 1.34 in just two days, as the post-midterm tech sell-off hit equities and boosted demand for the dollar.
Domestically, the BoE’s move to 4.00%, unanimous vote for tightening and higher inflation forecasts reinforced sterling’s carry appeal. The MPC also left the door open to another hike in December should the Middle East energy shock persist. However, with markets already pricing an elevated terminal rate, the scope for further hawkish repricing looks increasingly limited.
Lower oil prices add another complication. Brent fell around 15% last week, easing the inflation impulse that has underpinned recent BoE tightening expectations. Meaningful de-escalation could therefore encourage some dovish recalibration further out.
Sterling nevertheless retains several supports: resilient growth, reduced fiscal concerns following the “continuity Budget” and improving UK-EU relations offer another medium-term positive. The caveat is positioning. GBP/EUR looks rich relative to rate differentials, and the pair remains in overbought territory according to the daily RSI too. That argues against chasing sterling above 1.20 the common currency.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: November 09-13
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.
