Dollar Pulls Back as Investors Assess French Government Upheaval
GBP
GBP/USD is currently trading at 1.2720 (interbank), while GBP/EUR stands at 1.2079 (interbank).
This morning, UK construction activity increased, with the S&P Global Construction PMI rising to 55.2 in November from 54.3 in October, surpassing market expectations of 53.4.
Yesterday, Bank of England Governor Andrew Bailey suggested that up to four interest rate cuts could occur next year, contingent on the economic outlook, though he emphasised that any policy easing would be implemented gradually.
While Governor Bailey refrained from providing specific guidance on the December 19 monetary policy meeting, market participants expect the Bank of England to keep rates steady at 4.75%.
Today’s events (GMT):
09:30 - Construction PMI (Nov) – Actual: 55.2 vs Forecast: 53.5
EUR
EUR/USD is currently trading at 1.0530 (interbank), rebounding from the two-year low of 1.0331 reached in late November.
Eurozone retail sales rose 1.9% year-on-year in October, exceeding the 1.7% forecast but falling short on a monthly basis, contracting by 0.5% compared to September's 0.5% growth.
The Euro edged higher following the removal of Michel Barnier in a historic vote of no confidence, escalating the political crisis in France. This development may delay fiscal tightening in the Eurozone's second-largest economy, though its significant budget deficit will eventually require resolution.
ECB President Christine Lagarde warned of increasing risks to the trading bloc during her testimony before the Parliamentary Committee, stating, “The medium-term economic outlook is uncertain, and dominated by downside risks.” Markets are widely expecting the ECB to cut interest rates by 25 basis points next week.
Today’s events (GMT):
07:00 - German Factory Orders (Oct) - Actual: -1.5% vs Foreca: -2.0%
10:00 - Retail Sales (YoY) (Oct) – Actual: 1.9% vs Forecast: 1.7%
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, is down 0.1%, currently at 106.20.
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The dollar has relinquished some of its recent gains following softer-than-expected private payroll data and a slowdown in services sector activity in November after previous months of growth.
Federal Reserve Chair Jerome Powell noted that the U.S. economy remains stronger than the central bank had anticipated in September, hinting at a more cautious pace of interest rate reductions moving forward.
While markets are still pricing in a December rate cut, the focus will be on today's weekly jobless claims data and Friday’s nonfarm payroll figures to refine expectations for the Federal Reserve's next moves.
Today’s events (GMT):
13:30 - Continuing Jobless Claims – Forecast: 1,910K
CAD
USD/CAD remains steady at 1.4056 (interbank), maintaining distance from the recent 4-1/2-year high.
Last month, the pair reached levels not seen since April 2020 at 1.4177 as markets navigated the potential implications of U.S. trade tariff threats.
Markets still anticipate further monetary easing from the Bank of Canada at next week's policy meeting, with a 50% probability of an outsized 50-basis-point rate cut currently priced in.
Canadian bond yields fell across the curve, tracking U.S. Treasury movements, with the 10-year yield slipping 3.2 basis points to 3.086%.
Moreover, Brent crude is trading at $72.60 per barrel, while West Texas Intermediate crude (WTI) is at $68.83 per barrel.
No significant events are scheduled for today.
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