- Eying year-end highs. The MSCI All Country World Index has staged a strong rebound over the past fortnight, narrowing the gap to just 0.5% from its late‑October record close. All‑time highs are in sight if seasonal tailwinds materialise.
- Dwindling dollar. The US dollar index is near a 1-month low and heading for its fourth weekly decline in five. GBP, EUR, JPY and AUD have led the gains.
- Cut to the chase. Dovish Fed repricing has gathered pace with an over 90% chance of a cut in December. Our view remains that the upcoming meeting could very well mirror September and October though: a cut packaged up in hawkish messaging.
- Chair force one. Kevin Hassett has emerged as the frontrunner to replace Jerome Powell when his term ends in May 2026. Prediction markets give him ~75–80% odds of nomination, with President Trump hinting at a Christmas reveal.
- Tokyo drift. Benchmark Japanese bond yields climbed to their highest since 2007, driven by investor worries over Prime Minister Sanae Takaichi’s spending plans and anticipation of a Bank of Japan rate hike. The yen is up over 1% this week.
- Calm before the carry storm? Rising Japanese yields risk a massive unwinding of the yen carry trade, which would inject volatility across global FX and risk assets.
- Crunch time. Just seven months into office, Germany’s coalition government faces a key vote that could trigger its demise. This could impinge on the euro’s recent rally.
Global Macro
Conflicting signals
US jobs jumble. While new unemployment claims and continuing claims both dropped last week, with the former hitting a three-year low of 191,000, overall yearly layoffs have already surpassed 1.1 million, the highest total since the 2020 pandemic, according to Challenger, Gray & Christmas. This conflicting trend was amplified by the surprise announcement earlier in the week that ADP private payrolls shrank by 32,000 jobs in November, drastically missing the consensus expectation for 10,000 jobs created. The dip in jobless claims is likely temporary as the late Thanksgiving holiday timing may have suppressed filings; a rebound is expected next week.
Mixed recovery. The ISM Services PMI rose (52.6), and its Prices Paid index saw the largest drop in over a year (to 65.4), signaling easing inflation. Conversely, the ISM Manufacturing PMI deepened its contraction (48.2) for the ninth month, with factory Employment sinking to a weak 44.0.
Fed odds. The latest data releases this week have solidified market expectations, keeping the probability of the Fed announcing a rate cut next Wednesday firmly at 90%.
Economic divergence. The HCOB Eurozone Composite PMI was revised up to 52.8, marking the strongest expansion since May, driven primarily by resilient Services sector growth. In contrast, the manufacturing sectors in both China and Canada showed unexpected weakness, with China’s Caixin Manufacturing PMI slipping to 49.9 and the Canada Ivey PMI sharply contracting to 48.4, signaling persistent challenges and slowing momentum across key international trade partners.
Week ahead
All eyes on the Fed
Fed cut looms, Powell’s legacy at stake. The Fed is expected to deliver a third consecutive cut next week. However, since the October meeting, with the data backdrop still affected by the shutdown, the macro picture remains muddled. What we can see points to continued labour market softness and still‑elevated inflation, though conditions have not deteriorated significantly since, which raises doubts over the reliability of current market pricing. One thing is certain: the more cuts executed under Powell, the harder it will be for his dovish successor to push through aggressive easing against the broader FOMC.
Germany stuck in stagnation. We continue to monitor industrial production in Germany as the bloc’s largest economy approaches the end of yet another stagnant year. Pressures are mounting as the government is expected to deliver on spending promises heading into 2026 amid a politically fragile backdrop and anemic growth prospects.
More jobs data in Fed spotlight. JOLTS and weekly jobless claims carry greater weight as consensus points to labour‑market softness, though data gaps prevent a fully coherent view. Last week’s stronger claims and Challenger cuts contrasted with weak ADP, underscoring the mixed signals.
UK data builds ahead of BoE policy decision. Key UK macro releases are due next week, notably monthly GDP and industrial production. These arrive the week before the BoE’s policy meeting. While the major releases – inflation and labour market reports – are to come the following week, next week’s figures will remain relevant for a BoE that continues to show hesitancy before committing to a more aggressive easing path.
FX Views
Glass floor for Fed easing
USD Patchy data confident markets The dollar index (DXY) heads into the week’s close 0.5% lower. The almost fully priced‑in December cut gained substance as weaker‑than‑expected ADP data reinforced the consensus of labour market softness. That said, the broader picture remains patchy, with key releases still due after the Fed’s meeting on 10 December. This week also marked the fourth consecutive decline in government‑issued weekly jobless claims, while job cuts compiled by Challenger and Christmas showed contraction. With the big‑ticket item – NFP – still absent, there is little cohesiveness in the signals from these smaller releases. While markets appear confident about a cut next week, a dollar‑positive reaction is possible if the cut is accompanied by the now familiar hawkish messaging. The fall in the dollar index is also justified by its still‑rich positioning relative to rate differentials with its constituents, explaining DXY’s attempt to realign with rate spreads. Having broken south of its recent ascent, that move is reinforced technically, with the 98 handle – above 98.50 – emerging as a more comfortable price‑action area for now.
EUR Euro gains, Fed in focus The euro strengthened against the dollar this week, buoyed by signals reinforcing expectations of Fed easing in December. Softer‑than‑expected ADP payrolls data added to evidence of labour market weakness, while Trump’s likely dovish Fed Chair nomination further weighed on USD sentiment. Tuesday’s stronger‑than‑expected eurozone inflation confirmed the ECB’s steadier stance, sharpening the rate differential in favour of the euro. On the technical front, EUR/USD has broken through resistance levels we have highlighted, including the 21‑, 50‑, and 100‑day moving averages. The 21‑day acted as the first bearish guide in early October, before the 50‑ and 100‑day began capping price action mid‑month. Today, the pair has cleared those ceilings, breaking the bearish structure in place since mid‑September. This sets the stage for further upside, though sustainability will hinge on cohesive dovish messaging from the Fed against a still‑fractured US data backdrop. On the geopolitical front, Witkoff’s visit to Moscow for discussions with President Putin yielded no breakthrough, capping further euro upside for now.
GBP Best levels in a month. Sterling has extended its post-Budget recovery, buoyed by a combination of supportive domestic data and a dovish repricing of Fed expectations that triggered a broader risk‑on rally. GBP/USD surged to its highest level in more than a month, breaking through key moving averages and briefly testing above the 100‑day average near $1.3370. The move has pushed the pair into overbought condition raising the risk of near‑term consolidation. GBP/EUR also climbed to a one‑month high, hinting at a tentative short‑term breakout. Options markets, which had built significant GBP downside hedges ahead of the Budget, have since seen those tail risks priced out. The removal of these hedges has contributed to an unwinding of bearish bets, further fueling the rebound. Meanwhile, CFTC positioning shows leveraged funds steadily rebuilding longs, but asset managers remain net short — a divergence that highlights tactical optimism but persistent structural caution. Near term resilience offers opportunities, but political uncertainty, fiscal fragility, and BoE easing expectations suggest long-term challenges for the pound. This is especially true against euro, which remains locked in a long‑term bearish trend.
CHF Unfazed by inflation undershoot. The franc largely shrugged off softer‑than‑expected Swiss inflation data this week. Headline prices were flat in November from a year earlier, while core inflation fell to the weakest level in more than four years, implying this quarter’s outcome will undershoot the Swiss National Bank’s 0.4% forecast. Even so, the figures are unlikely to push the SNB back into negative rates at next week’s meeting; instead, markets will focus on whether inflation forecasts for 2026 are revised. Meanwhile, renewed Ukraine–Russia peace talk headlines have weighed on CHF’s safe‑haven appeal, which tends to react more acutely to shifts in European risk sentiment. Yet with US and G10 inflation dynamics unresolved and geopolitical risks lingering, the case for maintaining defensive FX exposure remains credible. EUR/CHF is up 0.2% this week but still lower year‑to‑date, while USD/CHF remains around 12% weaker YTD — a dilemma for the SNB, which may prefer to curb undue strength rather than attempt to reverse the broader trend.
CNH China services lose steam but yuan rallies. China’s RatingDog services PMI slipped to 52.1 in November from 52.6, marking the slowest pace of growth in five months. The sector stayed in expansion, though momentum weakened slightly. The composite PMI came in at 51.2, down from 51.8. This private survey still looks brighter than official data, which showed both non-manufacturing and composite PMIs contracting. The yuan has strengthened, with USD/CNH dropping to its lowest level in over fourteenth months. Resistance sits at 7.0888 on the 21-day average, followed by 7.1083 on the 50-day average. Market participants will keep an eye on upcoming imports, exports, CPI and PPI.
JPY Katayama backs BoJ. Japan’s Finance Minister Satsuki Katayama said monetary policy decisions should remain with the Bank of Japan, sidestepping Governor Ueda’s recent remarks. She stressed the government expects the BoJ to steer policy toward 2% inflation supported by wage growth. Katayama added that the central bank and government are working closely, monitoring corporate trends, and share the view that the economy is gradually recovering. The USD/JPY pair has eased in recent days, with the chart showing its correlation to US rate expectations breaking down. Key support sits near 155.23 on the 21-day average, followed by 153.48 on the 50-day. Market participants will keep an eye on upcoming current account, GDP, and industrial production.
CAD Holding the line. The Canadian dollar spent most of the week firm around1.395/397, supported by a weaker US dollar following a weaker-than-expected US ADP report. Historically, December is noted as being a notoriously quiet month for the CAD based on the long-term average performance since 1970, yet the broader US dollar index has suffered declines in eight of the past ten years, suggesting a potential for CAD strength. Ending the week, the CAD saw a strong move towards 1.389 following a better than expected employment figure for the month of November, ending the week with a strong 1% gain versus the US Dollar.
While this quiet historical trend exists, several upcoming events may inject volatility, including the Federal Reserve (Fed) meeting next Wednesday, along with the Bank of Canada (BoC) meeting, the US employment report a week after, and Canadian CPI data on December 15. Ultimately, the Loonie’s ability to sustain trade below the critical 1.40 level is seen as heavily reliant on continued US dollar weakness, aligning with the observed recent historical pattern of the USD struggling in the final month of the year.
AUD Aussie growth slows but AUD/USD above 0.6600. The Aussie was higher even after a weaker economic growth reading. Australia’s Q3 GDP grew 0.4% quarter-on-quarter, missing forecasts of 0.7% and down from a revised 0.7% previously. Year-on-year growth hit 2.1%, just shy of the 2.2% estimate and slightly above the prior 2%. Despite the miss, the Aussie is now above key psychological handle of 0.6600, with weekly return of 1%. There’s a dichotomy between the correlation of AUD/USD and two year rate differentials, which may bode well for AUD/USD to play catch up. The next key support lies at the 50-day EMA of 0.6534, followed by the 100-day EMA of 0.6522. Market participants will keep an eye on upcoming building approvals, RBA rate decision, employment change and unemployment rate.
MXN Ignoring local data. The USD/MXN pair is currently in a phase of short-term consolidation, trading near 18.3. This follows a multi-month period of significant strength for the Mexican Peso (the “Super Peso”). Technically, the pair has stabilized within a tight, sideways range defined by key resistance near 18.76 and major support around 18.20. Despite a series of negative domestic data, including the S&P Global Mexico Manufacturing PMI report, the peso’s strong performance this year has continued, benefiting this week from a weaker US dollar and the return of risk-on sentiment to the market, which has been the consistent story of 2025 that has helped keep bid emerging market and Latam high-yield currencies.
BRL High-yield advantage. The Brazilian Real (BRL) has been one of the strongest currencies in Latin America this year, exhibiting a significant appreciation of approximately 15.7% against the US dollar year-to-date. This strength is primarily due to Brazil’s substantial real-yield advantage, which continues to attract robust carry inflows despite the domestic economy cooling, as confirmed by a weak 0.1% Q3 GDP print. While this deceleration reinforces the case for central bank rate cuts starting in 2026, the BRL’s outlook is structurally supported by a projected softer USD. The currency’s ultimate potential, however, remains limited by domestic political risk and persistent market concerns over fiscal credibility.
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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.
