Dollar has a good week
The dollar advanced again on the euro on Friday to end a good week for the US currency. The dollar has gained to about $1.1520 to the euro this morning from over $1.1620 at the start of last week. The dollar also gained on sterling last week to around $1.31, appreciating about 1 cent over the week. The dollar’s gains are coming as the market is adjusting expectations for a Fed rate cut at next month’s meeting. The delayed US payrolls for September was more positive than expectations, adding 119k jobs, but also showed unemployment ticking up to 4.4%. The next jobs data will now not come until after the December 10th FOMC meeting. This leaves the market speculating, that without further labour market data, the Fed’s decision on rate cuts is finely balanced, with the probability shifting day by day and is currently lying at about 60:40 in favour of 25bps cut. The euro lost a little ground against sterling last week too, down to just under 88p this morning.
US government bond yields fell across the curve on Friday, as the market again adjusts its expectations for the Fed’s next move. US 10-year yields fell 5bps on Friday meaning, despite a rise in US yields midweek, 10-year yields finished the week at under 4.1% from 4.15% at the start of last week. German 10-year yields were largely unchanged last week remaining at close to 2.7%. UK 10-years lost a few bps for the week but UK markets could be in for a more volatile time this week with the key UK budget due. In equity markets, the S&P 500 gained 1% for the day on Friday but lost nearly 2% on the week as investors fret about AI and equities valuations.
The flash PMIs for the Euro Area were somewhat of a mixed bag. Euro Area services PMI held up in November at 53.1 from 53 in October but manufacturing disappointed coming in at 49.7, below the expansion threshold, and down from 50 the previous month. The readings were not helped by weakness in Germany with manufacturing falling to 48.4 (from 49.6) though services in Germany were still expanding robustly, at 52.7 (from 54.6). The readings indicate, that despite the manufacturing sector dampening growth somewhat, the solid growth in services – and given the size of the services sector in Europe – means the Euro Area should continue to grow in the final quarter of 2025, and appears to the weathering the uncertainty caused by US trade policy. Although the ECB is on hold, growth next year should hold up, helped by investments in infrastructure and defence that are due to come on stream.
UK PMIs for November disappointed with the composite falling to 50.5 from 52.2 in October. Manufacturing improved slightly, to just above 50, but services were weak down to 50.5 from 52.3. This adds to data showing consumer confidence is falling back in the UK also. The services sector weakness is particularly worrying with new orders falling and indicators of employment growth also poor. Consumers and businesses alike seem worried about the potential impact of the upcoming budget with the need for spending cuts and/or tax increases to curb budget deficits. The poor data, however, does give the doves on the MPC more arguments for a rate cut next month, particularly as the decision to stay on hold this month was a 5-4 split with four members already favouring a cut.
Plenty of data this week. Today we get IFO readings from Germany and the ECB’s Nagel and LaGarde are due to speak. Later this week, in Europe we get confidence data as well as CPI expectations while in the UK we get Lloyds Business Barometer and Nationwide House Prices as well as Chancellor Reeves’ Budget. In the US, we are due retail sales, PPIs, durable goods orders and the Fed’s beige book with other delayed data also coming out as the US Government ramps up again following it’s recent shutdown.