The USD extended gains on Friday following a robust set of job numbers suggesting the job markets is stronger than initially thought. Job additions in November came in at 199,000 vs 185,000 expected, the unemployment rate fell to 3.7%, and month-on-month average hourly earnings rose to 0.4%. Markets to no surprise scaled back rate cut expectations by the Fed for next year, and GBPUSD and EURUSD hit two-week lows as a result. Later in the afternoon the University of Michigan consumer sentiment figures rose to the highest since August this year.
* Daily move - against G10 rates at 7:30am, 11.12.23
** Indicative rates - interbank rates at 7:30am, 11.12.23
A very big week ahead! Lets start with the UK. UK job numbers tomorrow morning are set to reveal a drop in weekly earnings from 7.9% to 7.6%, which may well cause markets to price in earlier rate cuts by the BoE next year and thus be negative for GBP. October's GDP number on Wednesday morning is expected to show the economy contracted in October by 0.1%. Thursday’s Bank of England meeting will be closely monitored to see if the Bank will acknowledge rising growth concerns, as well as the recent falls in inflation. And finally on Friday we have the first PMI readings for December, expected to show an expansion in the services sector.
December so far has been a poor month for the EUR as markets piled on rate cut bets by the ECB next year. So, this week's ECB meeting we’ll be looking out for any credible contrarian hawkish views by the ECB to counter the weakness in EUR. Failure to do so and the single-bloc currency will likely weaken further, and on Friday we have PMI numbers from the area as well.
US inflation numbers tomorrow are expected to show headline inflation eased further to 3.1%, and the core number expected to remain at 4%. The Fed will be in focus on Wednesday evening, where we’ll also get their latest dot plot projections. Thursday sees Novembers retail sales, which will be a key barometer again on signs of the strength of the US economy, as well as the PMI numbers on Friday. Overall, anything to suggest that Fed rate cuts will be scaled back, the expect the USD to finish the month strong.
With the Fed, ECB, and BoE all in focus this week, we look to the rates markets again to determine the direction of USD, EUR, and GBP going into year-end. USD demand has picked up this month on the narrative that perhaps the markets were too extreme in their stances on the amount of rate cuts next year, and we can see that rate cuts have been scaled back in recent days. Credibility on the pushback of rate cuts by the Fed, ECB, and the BoE will be key during their respective meetings this week.
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