USD: Dollar gets stuffed
Sterling and euro strength have left the dollar on the carving board into Thanksgiving, with investors trimming positions. The US dollar index is down about 0.6% this week, pressured by dovish Fed repricing and tailwinds for G10 peers.
Signs of softness in the US economy are enough for officials to look past sticky inflation, with markets almost fully pricing a December rate cut and at least two more next year. Kevin Hassett as the next potential Fed chair adds another layer of intrigue. His openly dovish stance — calling for cuts immediately and aligning with Trump’s bias for lower rates — reinforces market expectations of a more aggressive easing cycle. That prospect has already contributed to lower Treasury yields and a softer dollar.
Given the dollar remains expensive versus short‑term drivers, and with markets reinforcing bets on a December cut, risks stay tilted to the downside into the holiday. That said, the release of the Beige Book was quite uneventful, adding little new texture to the picture and failing to push the dollar index below short-term support at 99.400. The report showed employment declined slightly while prices rose moderately. For now, therefore, the index maintains its increasingly fragile yet still intact bullish uptrend since October.
CAD: Slight shift towards fundamentals
As fears subside in the US equity market, the US Dollar has retreated from its weekly highs. The US Dollar is currently behaving like a classic risk-off asset, as markets recover from extreme fear and equities push higher, the greenback weakens. This shift in sentiment has been supported by the Federal Reserve’s recent Beige Book, which reinforced a narrative of softening in the labor market and highlighted uneven, “K-shaped” economic activity, essentially giving the central bank little incentive to push back against the market’s increasingly dovish expectations.
With the swaps market now pricing in a substantial, nearly 90% probability of a rate cut by December, market attention is zeroing in on Fed Chair Jerome Powell’s comments next month, specifically whether he will validate the market’s attempt to once again probe for a terminal rate below the 3% threshold. Should that guidance materialize, the dollar has meaningful room to adjust lower as rate differentials, which compare US interest rates to those of other major economies, begin to compress, causing the post-summer resilience seen in the US dollar index to give way to a more sustainable convergence with fundamentals.
This overall dollar weakness has directly contributed to the USD/CAD retreat toward the 1.404 level, as the yield differentials between short-term US and Canadian government bonds narrow, structurally pointing to 1.40 as the key short-term anchor for the pair.
On the macro front, according to the Canadian Survey on Business Conditions, fourth quarter 2025, released by Statistics Canada, firms are entering the new year navigating persistent operational challenges, but maintaining an optimistic outlook comparable to previous quarters. The key takeaway is that the core pressures haven’t fundamentally shifted: cost-related and labour-related obstacles continue to be the main anticipated challenges, expected by over 60% and over 25% of businesses, respectively. Interestingly, despite these persistent concerns, business optimism about the next 12 months remains steady, with nearly two-thirds of firms reporting that they are very or somewhat optimistic. This suggests that while operational headwinds are real, most businesses feel capable of navigating the current economic environment.
Digging into the details, inflation and recruiting skilled employees are tied as the single most challenging expected obstacles. The good news is that the burden of high borrowing costs may be easing slightly; following the Bank of Canada’s rate cut in October 2025, the proportion of businesses viewing interest rates and debt costs as an obstacle has slightly declined. On the labour front, the cost of retaining and attracting talent is directly impacting wage expectations, as nearly two-fifths of businesses anticipate raising average wages over the next year, primarily driven by the current rate of inflation and the need to retain skilled staff. It’s clear that while macro signals like interest rates are moving favourably, the fight against high costs and the tight labour market remains a top priority for Canadian executives.
GBP: 88 fixes, one stark reality
Yesterday, Chancellor of the Exchequer Rachel Reeves delivered the Autumn Budget. A lot happened, including a technical error at the OBR that led to its forecasts being released before Reeves began speaking (typically announced by the Chancellor him/herself during the Budget speech).
Reeves announced an additional £26bn in tax revenue to be collected by 2029/30, set against a better‑than‑expected fiscal headroom of £22bn compared with £9.9bn in the 2024 Budget.
One key takeaway is that many of the policies announced are back‑loaded, meaning they will not be implemented for several years. This undermines the predictability that markets crave – a more welcome approach would have been to bring more of the fiscal pain forward into 2026. Early implementation builds credibility, reduces the risk of policy U‑turns (of which we have seen plenty this year), and crucially brings revenue in faster.
What complicates this dynamic is Reeves’s reliance on a large number of small policy fixes: about 88 measures announced yesterday, compared with an average of 57 at fiscal events over the past decade. That complexity, combined with the back‑loaded implementation, raises questions about the reliability of the £26bn in planned tax revenues she aims to collect.
Yet markets appeared calm: sterling traded higher while gilt yields fell. The larger‑than‑expected headroom was clearly well received. Recall that it was revealed before Reeves even presented her plan, creating a cushion that reassured investors and effectively raised their tolerance threshold for policies they might have otherwise disliked from the outset.
On inflation, there was little aimed at curbing price pressures in the short term, while the OBR forecasts inflation higher in both 2025 and 2026. The result was a market unwilling to price in a full BoE rate cut for December (~90% probability, barely changed from pre‑Budget) or beyond, muting sterling downside.
Therefore, the current calmness is to be short-lived, with pressure likely to rebuild at the far end of the curve and sterling set to weaken as the Budget is more fully digested in the coming weeks.
Sterling rejoices in the budget aftermath
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.
