The United States dollar index (DXY) started the week slightly down, after settling near two-week lows of 99.50 on Friday as investors continued to price in a markedly more dovish Federal Reserve stance.
Market expectations for lower U.S. rates strengthened after comments from New York Fed President John Williams, who said there was room for “a further adjustment in the near term to the target range for the federal funds rate”.
That helped lift the probability of a 25-basis-point cut at the December meeting to more than 87%, up from 39% one week earlier, according to the CME FedWatch tool.
Additional speculation arose after reports suggested Kevin Hassett is the frontrunner for the role of Federal Reserve Chair, with traders perceiving him as aligned with U.S. President Donald Trump’s preference for lower interest rates.
Economic data did little to change the narrative. Initial jobless claims fell to 216,000 for the week ending 22 November, beating expectations of 225,000, while producer inflation stabilised in September.
Meanwhile on Sunday evening (Monday AEDT), U.S. and Ukrainian officials concluded around four hours of talks aimed at advancing a potential peace deal between Russia and Ukraine.
The discussions follow two weeks of negotiations that began with a U.S. blueprint for peace that critics said initially favoured Russia.
U.S. Secretary of State Marco Rubio described the session as productive, though he noted that significant work remains in the pursuit of a lasting agreement.
Euro firms above 1.1600 as Fed expectations dominate
The EUR/USD currency pair ticked down 0.1% after settling at 1.1601 on Friday, finishing the week and the month higher as the pair rebounded from lows of 1.1555. This was supported by broad DXY softness and improving sentiment toward European data.
German retail sales underperformed in October, yet the bloc’s inflation picture showed signs of resilience.
November’s Harmonised Index of Consumer Prices in Germany and Spain both approached or exceeded the 3% threshold, while France’s Q3 GDP matched expectations.
With the European Central Bank signalling that its easing cycle is complete and the Federal Reserve preparing to loosen policy, the path of least resistance for EUR/USD remains to the upside.
Looking ahead, a crowded U.S. schedule — including ISM manufacturing and services PMIs, industrial production, the ADP employment change report and weekly labour market figures — will be central to momentum this week.
Aussie steady as local inflation remains sticky
The Australian dollar (AUD/USD) traded steady after holding around 0.6535 on Friday, supported by persistent domestic inflation and expectations that the Reserve Bank of Australia will maintain a cautious policy stance.
Australian consumer prices have now risen for four consecutive months and sit well above the RBA’s 2–3% target range.
Private sector credit grew 0.7% month-on-month in October, exceeding forecasts and underscoring resilient domestic demand.
While markets broadly expect the RBA to keep the Official Cash Rate at 3.6% in December, stubborn inflation leaves the risk of further tightening elevated.
Despite these supports, the AUD’s gains remain limited as investors balance Australia’s sustained inflation with growing expectations of U.S. monetary easing.
For now, AUD/USD trades within a narrow range as markets await policy signals from both the RBA and the Federal Reserve.
Sterling pulls back after Autumn Budget reaction
The GBP/USD started the week steady at 1.3227 after edging lower to 1.3220 on Friday amid thin North American liquidity and post-budget profit-taking.
Although the pair is still up nearly 1% over the period, sentiment softened as traders reassessed the implications of the UK government’s Autumn Budget.
Chancellor Rachel Reeves defended the government’s spending plans, which will increase welfare expenditure by raising taxes by £26 billion.
The budget initially pushed Cable above 1.3200 and up to 1.3268, but sellers re-emerged as markets priced in the likelihood of a 25-basis-point rate cut from the Bank of England.
Yen supported as BoJ tightening bets rise
The USD/JPY held at 156.078 in early trades, consolidating gains after retreating from 10-month highs on 20 November near 158.00.
Strong Japanese data bolstered expectations that the Bank of Japan will raise interest rates by 25 basis points in December or January.
Tokyo CPI remained firm in November at 2.7% year-on-year, with core inflation steady at 2.8%.
Retail trade jumped 1.7% - more than double expectations - and industrial production rose 1.4%, reversing forecasts of a decline.
These indicators reinforce the view that the Bank of Japan may soon step away from its ultra-loose stance.
However, concerns surrounding Japan’s large fiscal stimulus package - valued at ¥21.3 trillion - continue to pose headwinds for the Yen, tempering its advance.
Economic Calendar Week Ahead
On Monday, Japan will release its capital spending data, while South Korea reports its balance of trade, imports and exports. Australia will publish quarterly business inventories and company gross profits.
China will release Ratingdog manufacturing PMI, and the United Kingdom will issue Bank of England consumer credit, mortgage approvals, and net lending figures.
During Tuesday's session, Australia will publish dwelling prices, building permits and private housing approvals. The United States will release construction spending, ISM manufacturing employment and PMI data, along with remarks from Fed Chair Powell.
South Korea will report its inflation rate, Japan will post consumer confidence figures, the U.K. will release nationwide housing prices, and the euro area will update its inflation and unemployment rates.
Wednesday brings the United States report on the Redbook index, comments from Governor Bowman, and total vehicle sales.
South Korea will release final GDP data, Australia will publish quarterly GDP growth, China will release Ratingdog services PMI, and the euro area issues producer price data.
On Thursday, the United States will release ADP employment figures, import and export price indices, industrial and manufacturing production data and the ISM services index.
Australia will report its balance of trade, imports, exports and household spending.
The U.K. will release new car sales and construction PMI, while the euro area updates retail sales.
During Friday's trade, the United States will release balance of trade data, initial jobless claims and remarks from Governor Bowman.
Japan will issue its Tankan index and household spending data, the U.K. will provide the Halifax house price index, and the euro area will release its employment change and third estimate of GDP.
Over the weekend, Canada will publish employment figures and the unemployment rate, while the United States releases the PCE price index, factory orders, preliminary Michigan consumer sentiment, and personal income and spending.
