December opens with a weaker USD and GBP under pressure

Intense week ahead! Crucial data worldwide will most likely have a choppy effect on FX-rates after the US holiday weekend. With widely expected rates cuts ahead in the US and UK next week, this week’s EU inflation data alongside US data will be closely watched

USD:

·     Fed Chair Powell’s speech this afternoon will be very closely watched for guidance on the path of US rates.

·     EUR/USD trades with moderate gains, changing hands at levels right above 1.1600 with upside attempts capped below 1.1615 for now. A mild risk aversion prevails with investors awaiting a wave of key macroeconomic releases this week, starting with the Eurozone's Manufacturing Purchasing Managers' Index (PMI) later on Monday.

·     Investors are bracing for Fed interest rate cut next week, and Donald Trump should promote Kevin Hassett from economic adviser to Central Bank Chairman. He is expected to bring Trumps agenda of loose monetary policy.

·     During European trading hours, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh two-week low near 99.30.

GBP:

·     GBP trades with a subdued tone after last week’s Budget. GBP/EUR briefly traded above 1.1400 last week, but is rooted under that level now. GBP is expected to remain under pressure as traders are increasingly confident that the Bank of England (BoE) will cut interest rates in its last monetary policy announcement of this year on December 18.

·   - In the budget report, Reeves announced that the government will raise taxes by 26 billion pounds by 2029-30 to fill the fiscal gap. Moody’s rating agency has acknowledged the Labour Party’s efforts to reduce the debt, while warning that “execution risks” remain intact.

• Sterling trades flat around 1.3230 against the USD during the European trading session on Monday. The GBP/USD pair consolidates while the USD falls further amid firm expectations that the US Fed will cut interest rates next week.

·     EURO:  

·     The Euro is showing strength against a softer GBP today, and is trimming some losses after a 0.8% decline over the previous two weeks. The pair has reached session lows above 1.1370 at the early European session, after bouncing off the high of 1.1435 area on Friday.

·     GBP/EUR holds steady, with GBP surprisingly receiving a small boost after tax-rising UK budget eased investors’ concerns about the UK’s public finances. The Euro, however, drew some support from the steady German consumer inflation figures and maintains a firm tone on Monday, with all eyes on the Eurozone final Manufacturing PMI data

·     Tomorrow’s EU inflation data is sure to shift the EUR if the reading diverts from the expected annual 2.5% rate. Wednesday brings a speech from ECB President Lagarde, so EUR-watchers have plenty to digest.

Elsewhere:

·     CHINA: Chinese factory activity fell to contraction levels, at 49.9 in November, against market expectations of a minor slowdown to 50.5 from October’s 50.6 level. This had some effects on trading partners rates:

o  As China is New Zealand’s major trading partner, weak data from the Asian country tends to add negative pressure on the Kiwi. Though, RBNZ-Fed monetary policy divergence underpins the Kiwi, and NZD remains close to monthly highs around 0.5744.

o  The AUD/USD pair loses ground to around 0.6540, snapping the six-day winning streak during the early European session on Monday. The Australian Dollar also takes a hit and retreats from two-week highs against the Greenback following the weaker-than-expected Chinese economic data. 

This weeks data:
Today:
USD: Fed’s speech + Manufacturing PMI

Tomorrow:
EUR: Consumer Price Index

Wednesday:
NZD: GDP
CNY: PMI
CHF: CPI
USD: Service PMI
EUR: Lagarde’s speech

Thursday:
AUD: Trade Balance
EUR: Retail Sales

Friday:
EUR: GDP data
CAD: Employment data
USD: Consumer Data (Sentiment + Index)