Few Incentives to Move Away from the Dollar at the Moment

Impact on GBP: Pound near 2024 highs on Eurozone uncertainty and ECB outlook

The Pound remains near 2024 highs against the Euro, supported by UK economic resilience and political uncertainties in France and Germany. Expectations of fewer Bank of England rate cuts than ECB moves also bolster GBP strength.

Last week, the Euro saw limited recovery after the collapse of Michel Barnier's government, with signs that France's budget will roll over into 2025.

EUR/USD's shallow rebound supports further GBP/EUR gains, with the pair at €1.2070, targeting €1.2090 and possibly the 2024 high of €1.2103 on a dovish ECB move or a 50bp rate cut.

Friday’s UK growth data, expected to show a 0.1% contraction, could impact GBP, with stronger results boosting the Pound. Inflation and labour data next week will guide expectations for the Bank of England's December 19 decision.

No Major Data.

Impact on EUR: EUR/USD faces renewed pressure ahead of key ECB meeting

Friday's US jobs report wasn't weak enough to push EUR/USD above $1.0600, though rate spreads are slightly more supportive for the pair. The key focus this week is Thursday's European Central Bank meeting, where a 25bp rate cut seems likely. Carsten Brzeski suggests the ECB could signal sub-neutral policy rates (below 2.00%) for next year. While hard data is holding up, there’s little for the ECB to feel optimistic about.

Today's Eurozone agenda includes the Sentix Investor Survey and the Eurogroup meeting, where debates on fiscal support versus austerity will take centre stage.

After recent consolidation, EUR/USD’s bear trend may resume. Seasonal December trends typically support EUR/USD, general consensus is seeing it drift toward $1.0500/0520 in the short term, with potential for further declines if US CPI or the ECB meeting offers bearish signals.

No Major Data.

Impact on USD: Dollar stays resilient amid geopolitical and policy support

Friday's soft US jobs report had limited impact on the Dollar, with the DXY finding support below 106. Geopolitical uncertainty, particularly in Syria and Korea, along with attractive one-week USD deposit rates at 4.6%, continues to support the Dollar.

This week, two key themes dominate. First, potential rate cuts across G10 markets, with meetings in the Eurozone, Switzerland, and Canada. While Canada may deliver a 50bp cut, the Fed's slower approach to easing keeps interest differentials favouring the Dollar.

Second, Wednesday's US CPI release is pivotal. A 0.3% MoM core reading aligns with expectations, but a hotter 0.4% print could challenge the Fed's upcoming rate cut plans. The Fed's blackout period and tomorrow's NFIB optimism index also add slight Dollar-positive momentum.

Overall, the is view is little reason to reduce long Dollar positions. The Dollar is likely to resume its bullish trend, with DXY supported in a 106.00-106.70 range today.

No Major Data.

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