One ECB dove

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Thanim Islam
  • EUR continues to weaken on Villeroy comments
  • Fed Powell struggles to keep USD supported

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USD started Friday strongly, continuing the gains made at the end of November, but those were scuppered in the afternoon with treasury yields slumping. Both S&P and ISM manufacturing numbers came in lower than expected at 49.4 and 46.7 respectively, marking the longest contraction streak in the sector since the dot-com bubble, which ultimately led to a recession. Later in the day, Fed chair Powell once again attempted to push back against rate cut speculation, but it seems markets are reluctant to believe him quite yet. GBPUSD finished higher on the day as a result.

Weakness in the EUR seems likely to continue on the perception that the ECB have turned dovish on rate expectations. ECB member Villeroy stated rate hikes are done and that the ECB can look at rate cuts when time comes in 2024. Markets are now pricing in approximately 125bps worth of rate cuts as a result. GBPEUR continued to trade higher to 2-½ month highs.

Manufacturing PMIs from the EU and UK came in marginally stronger than expected, but nonetheless remain in contraction territory.


Market rates

* Daily move - against G10 rates at 7:30am, 04.12.23

** Indicative rates - interbank rates at 7:30am, 04.12.23

Table - 2023-12-04T083807.152

Data points

Table - 2023-12-04T083808.858


  • None today.

Our thoughts

This week's focus will be on the US job market with the release of JOLT job openings on Tuesday, ADP payroll numbers on Wednesday, and then of course nonfarm payrolls, the unemployment rate, and wage numbers on Friday. Ultimately, what we are looking for is how strong the US job market remains, and the inflationary pressures this could have on the economy. As ever we will be keeping an eye on the impact of 2024 rate cut expectations and what this does for USD. The Fed will go into their blackout period from Wednesday, so data this week will be the key barometer.

From the EU we have service PMI numbers and final GDP readings for Q3, as well as service PMI numbers from the UK and the US.

USD has started the day stronger so far, but as mentioned above we wait to see the impact on this week's job numbers.

Chart of the day

ECB Villeroy showed what side of the hawk/dove side he was on after his comments on Friday, and as a result markets increased the amount of rate cuts expected by the ECB next year. The EUR erased two weeks of gains in one week.

04122023 cotd
Source: Bloomberg Finance L.P

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