- Relief rally across assets. Markets appear to be catching their breath as November closes. The S&P 500 is up 3% for the week, its best Thanksgiving run since 2012. The Nasdaq surges 5% as AI bubble fears subside and the USD retreats as panic abates.
- Budget chaos and calm. An OBR error leaked UK Budget details early, jolting markets. Relief followed as no missteps emerged, but credibility rests on delivering a back‑loaded consolidation plan and meeting optimistic OBR forecasts.
- Sterling pound. The pound’s “Budget bounce” makes it the best performing G10 currency this week, but it has the hallmarks of a relief rally rather than the start of a sustained trend.
- Beige signals. As investors continue grappling with a patchy data picture that hinders a cohesive view of the US economy, the Fed’s Beige Book this week did highlight a softening labor market – boosting Fed Dec cut bets to 90%.
- Chair with a bias. Kevin Hassett as the next potential Fed chair added 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.
- Waiting on peace deal. A potential build-up in expectations of a breakthrough in the Russia-Ukraine peace negotiations have helped risk appetite too. US presidential envoy Steve Witkoff is set to visit Moscow next week to continue negotiations. Any material progress should weigh on the USD and support high-beta European currencies, like PLN, HUF and CZK.
Global Macro
December Fed cut odds rollercoaster
Eyes in December. The stage is set for a potentially dramatic Fed meeting on December 10. Swaps markets are pricing in a 90% chance of a rate cut, coming back from 45% just a week ago. But don’t expect a quiet meeting. A razor-thin vote, perhaps 7-5, could emerge as the committee wrestles with balancing a weakening labor market against stubborn inflation.
Mixed signals. The Fed’s latest Beige Book signaled a cooling labor market and uneven, “K-shaped” growth, giving policymakers little reason to counter dovish expectations. Yet jobless claims told a different story, dropping to 216,000, one of the lowest readings this year. Also, according to the Conference Board’s index, consumer confidence deteriorated sharply in November amid the government shutdown. However, with assessments of the labor market showing a smaller deterioration, the stage is set for sentiment to improve in December.
UK Autumn Budget. Chancellor Rachel Reeves’ Autumn Budget sparked initial gilt volatility after an OBR forecast leak but ultimately reassured markets with a stronger fiscal outlook: headroom jumped to £22 billion from £9.9 billion, cushioning sentiment despite £26 billion in back-loaded tax measures and an unusually complex 88-policy mix. While credibility concerns linger over delayed implementation and inflation forecasts remain elevated, sterling strengthened and gilt yields fell on the improved fiscal buffer.
Hawkish RBNZ. After cutting rates by 25 bps points as expected, to 2.25%, the Reserve Bank of New Zealand looks close to wrapping up its easing cycle after slashing rates by 325 bps since 2024. With demand picking up and the labor market stabilizing, the next meeting on Feb. 18 could mark a turning point.
Week ahead
Public data still dormant, private still driving
PCE in focus. Highlight in the US will be the release of the Personal Consumption Expenditures (PCE) inflation gauge – favoured by the Fed over CPI as a more comprehensive basket. The report will be key to understanding US price pressures, especially as both NFP and CPI arrive only after the Fed’s 9–10 December meeting, placing greater emphasis on this release.
ISM takes the spotlight. US ISM PMIs are due. They have gained relevance as the lack of official data – still patchy despite the shutdown ending – has made markets more reliant on private sources. The release is broad in scope, offering insight into prices, employment, and activity. With the data picture blurred and the Fed’s meeting approaching, releases like these carry added weight.
Hard data, hard questions. In the eurozone, a batch of headline data is due: retail sales (Thursday), CPI (Tuesday), and unemployment (Tuesday). These releases will add texture to the eurozone outlook, potentially challenging the ECB’s “We’re in a good place” mantra – especially after this week’s minutes revealed growing divisions over inflation.
Labour signals beyond NFP. With the NFP report now delayed until after the Fed’s meeting, private data such as ADP and Challenger will draw greater attention. Also, these private‑sector surveys may offer a cleaner read on labour market momentum at a time when official government data may be distorted by shutdown-related layoffs.
FX Views
Cut odds rise, breakouts don’t
USD Dollar fragile as cut odds firm While last week’s circa 80% chance of a December cut looked exaggerated, given the limited data available post-shutdown, this week brought some evidence suggesting that today’s 80% probability carries greater data-driven weight. Also, there were reports suggesting that Kevin Hassett, viewed as the most dovish candidate for Fed chair, may be the frontrunner. The news weighed on the dollar, though only mildly, as Powell remains in control until May anyway. In response, the dollar rose last week, unmoved by unfounded easing expectations, but realigned – albeit only slightly – this week as the macro backdrop became marginally clearer despite persistent gaps. The dollar index is set to close the week 0.6% lower, yet its ascent since mid-September remains intact, with levels expected to hold above 99.400. Still, it grows gradually more fragile, as investors continue grappling with a patchy data picture that hinders a cohesive view of the US economy.
EUR Dovish hopes, technical limits EUR/USD aims to close the week 0.6% higher – a mild concretization of dovish Fed expectations was the major contributor to the pair’s upside. Yet they remain largely unfounded amid a still-unclear US macro backdrop, meaning this week EUR/USD is unlikely to break out of the downtrend it has followed since hitting year‑to‑date highs in September. Respect for the downtrend also explains the undervaluation of EUR/USD spot relative to its long‑term fair value (pointing to 1.17 highs). For mean reversion – EUR/USD spot realigning with its fair value – more US data remains crucial. In the meantime, the pair continues to observe the recent technical downtrend setup. Resistance at 1.1620/25, therefore, looks unreachable this week, as Thanksgiving‑quiet US markets provide no impetus.
GBP Budget bump. Sterling’s post Budget climb beyond $1.32 looks more like a relief rally than a lasting trend. Investors welcomed the signal of fiscal restraint, but muted market reaction suggests much was priced in, with gains partly driven by unwinding hedges. The government avoided missteps, yet credibility hinges on executing back loaded consolidation and the economy meeting the OBR’s optimistic forecasts. Meanwhile, traders lean toward a December BoE cut and have pulled forward expectations for another move to May, eroding sterling’s yield advantage. GBP/USD momentum stalled at its 200-day EMA near $1.3270, reinforcing that near term strength is tactical, not structural. Sterling’s struggles in H2 underscore the UK’s weak economic backdrop and lingering fiscal fragilities. The clearest manifestation has been the near‑6% slide in GBP/EUR, highlighting how domestic headwinds have weighed more heavily on the pound than on the euro. Indeed, the euro’s relative resilience has broken the usual lockstep between EUR/USD and GBP/USD, with correlation now at its lowest in roughly four years. This divergence reinforces the view that sterling’s vulnerability is increasingly home‑grown. Still, sterling looks set to break its losing streak versus the euro, avoiding a seventh straight monthly decline — a tentative sign the downtrend may be stalling.
CHF No thanks, francs. The Swiss franc has appreciated against only 20% of a basket of 50 global currencies this month, putting it on track for its worst monthly performance of the year. Tariff‑related headwinds remain evident, with October exports falling – underscoring pressure on policymakers to prevent further franc strength. Speculation, albeit limited, that the SNB could cut rates again makes the franc an expensive defensive play. Meanwhile, renewed Ukraine–Russia peace talk headlines weigh on the safe‑haven appeal of CHF, which typically reacts more acutely to shifts in European risk sentiment. Still, with US and G10 inflation dynamics unresolved, geopolitical risks lingering, and AI bubble fears simmering, the case for maintaining defensive FX exposure remains credible into 2026.
CAD Shift towards fundamentals. Shift towards fundamentals. Broad US Dollar strength largely explains why the Loonie (CAD) was pinned near the upper edge of its six-month range for much of the week. However, as fears subsided in the US equity market and a risk-on mode returned, the Dollar weakened. This directly contributed to the USD/CAD pair’s retreat toward the 1.403 level. Furthermore, the narrowing yield differentials between short-term US and Canadian government bonds structurally points to 1.40 as the key short-term anchor for the pair. Ending the week, the CAD reacted positively to a strong Q3 GDP that saw annualized growth at 2.6%, beating expectations of 0.5%, and seeing Canada dodging recession despite trade frictions. Next week attention turns towards the employment report (Fri) for the month of November.
AUD Higher inflation dashes rate-cut hopes. The Australian dollar was mostly higher over the last week following a stronger than expected inflation reading. Australia’s consumer prices rose 3.8% in October, beating the 3.6% forecast. Core inflation also surprised higher at 3.3% versus 3%. The stronger inflation reading makes it more likely the RBA will hold steady for now. Markets now expect the Australian cash rate to remain unchanged through 2026. AUD/USD climbed to its highest level since 14 November. From here, key resistance is now seen at 0.6580 and then 0.6600. More broadly, the AUD/USD remains stuck in a clear trading range between 0.6400 to the downside and 0.6700 to the topside – clearly defining medium-term levels for both AUD and USD buyers.
CNH Improving narrative. The Chinese yuan (CNY/CNH) has extended recent gains with the currency seeing its strongest week since August. The Chinese yuan has been supported by stronger equity flows with the benchmark CSI 300 up 20% year-to-date and trading near four-year highs. The CNH has also been helped by the weaker US dollar with the USD/CNH falling to one-year lows. However, the move lower appears stretched with the relative strength index, a key measure of momentum, rebounding from the “oversold” zone, which can sometime signal a potential reversal. For CNH buyers, a move back to 7.1025 might be targeted.
JPY Yen stays weak. The Japanese yen saw a small rebound from 10-month lows versus the US dollar over the last week but the move was mostly driven by the USD’s falls. The yen’s recent weakness is fueling speculation of a Bank of Japan rate move next month, according to former official Kazuo Momma. He told Bloomberg there’s no need to wait for clearer signals from wages or prices, as the softer currency is driving inflation via higher import costs. USD/JPY remains above 155.00. The USD/JPY remains in a clear uptrend with key moving averages pointing higher. Support sits at the 21-day EMA of 154.88, followed by the 50-day EMA of 152.77.
MXN Short-term consolidation. The USD/MXN pair is consolidating near 18.3 after the Mexican Peso’s multi‑month rally. The range is tight, with resistance at 18.76 and support at 18.20, while RSI near 50 signals balanced momentum. This neutral setup comes as Banxico reports a sharp slowdown in Q3 2025, cutting GDP growth forecasts to 0.3% amid external risks. Despite weak growth, the Peso remains strong, trading 4.8% below its one‑year average (19.43) and 3.5% below its five‑year average (19.16), reflecting robust demand for emerging market assets. Inflation has eased to 3.61%, back within Banxico’s target band, though core inflation at 4.25% shows persistent price pressures. Banxico expects headline inflation to reach 3% by Q3 2026. Easing global financial conditions have supported Peso appreciation and lower bond yields. With fundamentals and technicals aligned, USD/MXN is likely to remain range‑bound between 18.20 and 18.76 in the near term, as markets weigh strong currency valuation against Mexico’s cooling economy and await clarity on carry trade momentum into 2026.
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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.
