Introduction to the Week’s Market
The US dollar starts the week on a soft note, ahead of a busy schedule of data releases and central bank meetings in the G10 space. The highlight of the week will be the release of November US Non-Farm Payroll (NFP) data, which is expected to show a soft number of +50k, along with an unemployment rate edging up to 4.5%. Additionally, key Fed speeches, including one from New York Fed President John Williams, will be closely watched for any hints on future rate cuts.
USD: Fed’s Williams Speech Could Be Important
The dollar’s soft start to the week comes after last week’s pressure from a Federal Reserve that remained open to further cuts. However, a broader view is emerging that if the global economy remains resilient, some rate hikes should start to be priced in elsewhere in the world. This thesis supported the euro and the Australian dollar last week, but it comes with a warning. Overnight, the New Zealand dollar lost 0.7% as the new Reserve Bank of New Zealand Governor pushed back on hikes priced for next year.
Key Data Releases and Fed Speeches
In terms of the domestic US story this week, the focus will be on big data releases and key Fed speeches. The highlight is tomorrow’s release of the November NFP data. Any softer-than-expected data could bring forward pricing of the next Fed rate cut, which is currently priced with just a 33% probability for March. Another key data point this week will be Thursday’s release of November Personal Consumption Expenditures (PCE), where the year-on-year rate is expected to nudge up to 3.1%.
Central Bank Meetings
We are also interested in key Fed speeches, particularly whether key figures see room for more cuts. New York Fed President John Williams will speak at 4:30 pm CET today, and on Wednesday, we will hear a speech on the economic outlook from Chris Waller. The biggest threat to short dollar positions from overseas probably comes from Thursday’s European Central Bank rate meeting, should eurozone growth forecasts not be revised high enough or President Christine Lagarde push back against thoughts of ECB rate hikes in 2026.
EUR: A Big Week for Europe
The euro is holding onto last week’s gains, driven by the above US events and Thursday’s ECB meeting. The ECB meeting will be closely watched, as will the European Council meeting, where EU leaders will try to sign off on a reparations loan for Ukraine and a Mercosur trade deal. Away from politics, we also have a lively data calendar, including the release of flash PMIs for December and eurozone consumer confidence on Friday.
GBP: Short Positioning Is Huge
Friday’s soft UK October GDP data weighed on the pound, and it is a big week for UK data, central bank policy, and sterling. Ahead of Thursday’s expected Bank of England rate cut, we will see jobs data and the November CPI release. A BoE rate cut this Thursday is only priced at an 85% probability, but doves like ourselves at ING expect Governor Andrew Bailey to deliver a 5-4 vote to cut rates to 3.75%. One major threat to sterling bears, however, is positioning, as asset managers are currently running some of their shortest sterling positions in over a decade.
Conclusion
In conclusion, this week is expected to be a busy one for the markets, with key data releases, central bank meetings, and speeches from influential figures. The US dollar starts the week on a soft note, while the euro and pound will be closely watched ahead of the ECB and BoE meetings. Any surprises in the data or speeches could lead to significant movements in the currency markets, and investors should be prepared for a potentially volatile week. With short positioning huge in sterling and the dollar, any positive surprises could lead to a sharp short squeeze, making this a week to watch closely.
