Dollar Slides as Markets Brace for a Week Packed with Key Data
GBP
GBP/USD is currently trading at 1.2651 (interbank), while GBP/EUR stands at 1.2046 (interbank).
The Pound Sterling remains under pressure following last week's GDP report, which revealed an unexpected 0.1% contraction in the UK economy for October. This marks the second consecutive month of economic decline, raising concerns about the resilience of the UK's recovery.
This morning, preliminary S&P Global Flash Composite PMI data for December held steady at 50.5, just above the critical 50.0 threshold indicating expansion. However, manufacturing activity fell to its lowest level in 11 months at 47.3, while the services sector saw a modest improvement to 51.4. Employment across both sectors contracted at the sharpest rate since January 2021, highlighting ongoing challenges in the labour market.
Chancellor Rachel Reeves has further dampened sentiment with an increase in Employer’s National Insurance Contributions (NICs) announced in the October budget, affecting business confidence.
This week, attention will turn to the BoE's monetary policy meeting on Thursday, where interest rates are expected to remain unchanged at 4.75%, while investors will be watching tomorrow’s jobs market data for any signals about the pace of future rate cuts.
Today’s events (GMT):
09:30 - Composite PMI (Dec) – Actual: 50.5 vs Forecast: 50.5
09:30 - Manufacturing PMI (Dec) – Actual: 47.3 vs Forecast: 48.4
09:30 - Services PMI (Dec) – Actual: 51.4 vs Forecast: 50.9
EUR
EUR/USD is currently trading at 1.0500 (interbank).
This morning, Eurozone PMI data highlighted a slower pace of private sector contraction, with the Composite PMI improving to 49.5 from November’s 48.3. Services PMI rose to 51.4, moving into expansionary territory, while Manufacturing PMI remained in contraction at 45.2.
German and French PMIs also improved, mainly due to gains in the services sector, though both remained below the 50.0 threshold, signalling continued economic challenges.
Last week, the ECB cut its Deposit Facility Rate by 25 basis points to 3%, marking a total reduction of 100 bps this year. Given controlled inflation and rising economic risks, markets expect the ECB to lower borrowing costs further, with an additional 100 bps reduction anticipated by mid-2025.
ECB President Christine Lagarde and other policymakers have emphasised a cautious approach to rate reductions, with Lagarde noting a significant decline in services inflation momentum.
Today’s events (GMT):
08:15 - French Manufacturing PMI (Dec) – Actual: 41.9 vs Forecast: 43.2
08:15 - French Services PMI (Dec) – Actual: 48.2 vs Forecast: 46.9
08:30 - German Manufacturing PMI (Dec) – Actual: 42.5 vs Forecast: 43.1
08:30 - German Services PMI (Dec) – Actual: 51.0 vs Forecast: 49.5
08:35 - ECB President Lagarde Speaks
08:45 - ECB's De Guindos Speaks
09:00 - Manufacturing PMI (Dec) – Actual: 45.2 vs Forecast: 45.3
09:00 - S&P Global Composite PMI (Dec) – Actual: 49.5 vs Previous: 48.3
09:00 - Services PMI (Dec) – Actual: 51.4 vs Forecast: 49.5
16:30 - ECB's Schnabel Speaks
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, has declined to 106.898.
The main focus this week will be on Wednesday where the Fed is widely expected to lower the interest rate by 25 basis points this week, making its third consecutive cut this year. Markets expect the Fed to persist with a gradual pace of the easing cycle, especially under the Trump presidency next year.
U.S. inflation increased for the second consecutive month in November and the job market showed signs of easing but remained at a tight level.
Additionally, the US Personal Consumption Expenditures (PCE) is another critical indicator for inflation will be monitored. Economists forecast the index will increase 0.2% month on month in November, compared to 0.3% in the previous month.
Furthermore, the US retail sales and the final GDP for the third quarter will also be monitored this week as well as the latest Retail sales data, which is projected to grow steadily but could contribute to inflationary pressures. The third quarter economic growth came in at 2.8% at an annualised pace, slowing from 3% in the second quarter.
Today’s events (GMT):
14:45 - Manufacturing PMI (Dec) – Forecast: 49.4
14:45 - S&P Global Composite PMI (Dec) – Previous: 54.9
14:45 - Services PMI (Dec) – Forecast: 55.7
CAD
USD/CAD has risen to 1.4227 (interbank), reaching its highest level since April 2020.
The Canadian Dollar remains under pressure as the BoC aggressively eases monetary policy. Last week, the BoC cut rates by 50 basis points to 3.25% and signalled a more cautious approach moving forward.
BoC Governor Tiff Macklem highlighted the economic impact of President-elect Donald Trump’s proposed tariffs on Canadian exports, which are likely to pose further challenges.
The main focus will be tomorrow’s inflation data for November, which will provide further insight into the BoC’s policy direction, with the annual inflation rate last recorded at 2% in October.
Markets also remain watchful of inflationary risks in Canada stemming from President-elect Donald Trump’s proposed tariff hikes.
Today’s events (GMT):
13:15 - Housing Starts (Nov) – Forecast: 246.0K
20:45 - BoC Gov Macklem Speaks
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