USD slipped for a second day as softer US data dragged yields lower and raised the odds of a 25bps rate cut next week. ADP printed a chunky –32,000, the weakest since early 2023, reinforcing the trend of a cooling US job market. ISM services came in marginally higher with the prices-paid component showing a cooling inflation picture and the job component came in better than the previous month.
GBP stole the show, surging after UK PMIs were revised higher, triggering a wave of stop losses on GBPEUR taking it once again towards a key resistance level. GBPUSD ripped through the post budget relief rally with the traders pushing the pair higher on the weaker US numbers as well as the PMI numbers. The October 28th could well be tested on account of broader weaker USD weakness.
*Daily move - against G10 rates as of 06:00 GMT, 04.12.25
** Indicative rates - interbank rates as of 06:00 GMT, 04.12.25
More US job numbers today, expecting to reinforce a cooling job market which should further enhance the odds of a rate cut next week (currently a 93% chance). Combination of seasonality and firming of rate cut odds are contributing to the recent bout of USD weakness. Concerns continue to shroud around the possibility of the next Fed chair being on the dovish side and backing calls by Trump to cut interest rates.
Looking at the 10-year average performance of USD, December tends to be the worst month.
The GBP rally on the PMI numbers yesterday seems to be a move built on lower December liquidity and volumes; nonetheless, they present a good opportunity for GBP sellers to take advantage amidst the continued uncertainty of the UK.
Limit orders are the play in this illiquid environment and worth utilising, given we could well see GBPUSD test the October 28th highs over the coming weeks, and, particularly if the seasonal USD weakness continues.
GBPEUR is now pressing against a key resistance zone, and a break above could pave the way for a retest of the October highs.
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