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.
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.
EUR: Drivers align for extended recovery
EUR/USD extended its recovery toward $1.16, supported by rate differentials and tentative optimism around Ukraine–Russia. A breakthrough above $1.16 in the coming days could open the path to $1.1650, where the 100‑day moving average presents a key short‑term barrier.
Falling oil and gas prices continue to improve Europe’s terms of trade, offering a constructive driver for the euro as a net‑energy importer. Still, idiosyncratic positive news for the EU periphery can occasionally weigh on EUR/USD, likely via outsized trading in euro crosses (PLN, HUF and CZK strength). The Swiss franc, on the other hand, might be the biggest loser, given its regional and geopolitical safe haven status.
On the data docket, sentiment indicators from Europe will be eyed, though the real test is whether improvements in surveys translate into stronger hard data. Meanwhile, inflation dynamics remain critical: CPI prints from France and Germany on Friday will gauge whether price pressures have stabilised near target. Undershoots might fuel ECB easing bets, putting renewed pressure on the euro.
Still, as we continue to stress, the broader direction of the currency remains tethered to US dynamics. Weaker US data and dovish Fed pricing will give the euro the best chance of ending the year firmer.
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.
