Forex News

• The Pound Sterling trades broadly calm against its major peers at the start of a week featuring the Fed interest-rate decision.
• Investors expect both the Fed and the BoE to cut interest rates by 25 bps this month.
• The Fed might call for a pause after a rate cut on Wednesday as inflation remains well above the 2% target.

The Pound Sterling (GBP) trades slightly lower against its major currency peers at the start of the week, hovering at around 1.3320 against the US Dollar (USD). In a week in which the United Kingdom (UK) economic calendar is light, the British currency is expected to be influenced by global events and market expectations for the Bank of England’s (BoE) monetary policy outlook.

Traders are confident that the BoE will cut interest rates in the policy meeting next week amid weak UK labor market conditions and signs of a slowdown in inflation . The job market data for the three months ending in September showed that the Unemployment Rate rose to 5%. Meanwhile, the headline Consumer Price Index (CPI) report for October showed that inflation stood at 3.6% on an annual basis, the lowest level in four months.

For more cues on the monetary policy outlook, investors will focus on the speech by Bank of England (BoE) external member Alan Taylor, which is scheduled at 14:30 GMT.

Daily digest market movers: Fed looks set to cut interest rates on Wednesday

• The Pound Sterling consolidates against the US Dollar (USD) around 1.3320 during the European trading session on Monday. The GBP/USD pair turns sideways after posting an over a month high at around 1.3385 last week, while the US Dollar trades cautiously ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
• At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to hold its over five-week low of 98.75 posted on Thursday.
• The CME FedWatch tool shows that the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% on Wednesday's policy meeting is 87%.
• The major trigger behind the firm Fed dovish expectations is weakening job market conditions. In late November, New York Fed Bank President John Williams also warned of slower economic growth and weak labour demand, while supporting the need for more interest-rate cuts. "Economic growth has slowed and the labor market gradually cooled," Williams said, adding that "there is room for a further adjustment in the near term.”
• With traders remaining confident that the Fed will cut interest rates on Wednesday, the major trigger for the US Dollar will be guidance on the monetary policy outlook. Federal Open Market Committee (FOMC) members are expected to support holding interest rates steady in early 2026 as inflationary pressures have remained well above the 2% target for months.

Technical Analysis: GBP/USD sees more upside above 1.3400

The Pound Sterling trades flat around 1.3320 against the US Dollar on Monday. The pair holds above a rising 20-day Exponential Moving Average (EMA) at 1.3227, maintaining a positive near-term bias. The 20-day EMA has sloped higher in recent sessions, and dips remain shallow.

The 14-day Relative Strength Index (RSI) at around 60 reflects bullish momentum.

Momentum remains supportive as price stays above the rising 20-day EMA. A daily close above the 50% Fibonacci retracement at 1.3402 would reinforce the bullish tone and open room towards the October 17 high of 1.3471. Conversely, failure to breach that barrier would keep the pair consolidating, with pullbacks leaning toward the 38.2% Fibonacci area and trend support at 1.3310.

Since the US has effectively halted its financial assistance to Ukraine, it has fallen to the European Union to support the Kyiv government financially. And this aid is urgently needed — Ukraine’s funds are expected to run dry as early as April. The idea of using the frozen reserves of the Russian Central Bank (CBRF) as reparations payments to Ukraine has been circulating for quite some time. Now, as Kyiv faces the impending depletion of funds, it seems that a group within the EU leadership is working tirelessly to bring this plan to fruition, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

Euro could face long-term risks if confiscation plan advances

"Such a move could undermine the attractiveness of the euro zone as an investment destination and, in turn, cause long-term damage to the euro itself. Some even fear that the euro’s safe haven status could be at risk. The reasoning is straightforward: an investment is considered safe only if there is a sufficiently high likelihood of recovering your money. If the state in which it is invested confiscates it without recourse, then clearly, this safety is compromised. It’s no coincidence that safe havens are not found in authoritarian countries where the rule of law is a vague concept."

"Of course, the impact on the euro will depend on how the plan is implemented. The EU leadership is presumably also aware that it must make every effort to avoid this step being perceived as a blatant violation of rules. Ultimately, it will depend on whether state or state-affiliated investors interpret the action as a one-time measure or as a blueprint for future sanctions. If it’s the latter, it’s likely that investors from countries that anticipate conflicts with the EU will become more hesitant to invest in Europe in the future."

"This could intensify a trend already observable in recent years: while the share of the US dollar in global foreign exchange reserves has been declining for years, the euro has seen little benefit from this. In fact, the euro has even been surpassed by gold as one of the world’s most important reserve assets. The sovereign debt crisis and Brexit may have left a bitter aftertaste. But certainly also the fact that the reserves of the Russian Central Bank, most of which are located in Europe, have been frozen as a result of the Ukraine conflict."

European Central Bank (ECB) policymaker Peter Kazimir said in the European session on Monday that he doesn’t see any reason of monetary policy adjustment in the policy meeting this month.

Additional remarks

I see no reason to change rates in the coming months, definitely not in December.

FX pass through to prices may not be as strong as expected.

Remaining vigilant to upside risks has become more important.

Overengineering policy around small inflation deviations would introduce unnecessary policy uncertainty.

Market reaction

EUR/USD trades flat around 1.1660 as of writing. The impact of ECB Kazimir's comments appears to be insignificant on the Euro (EUR).

EUR/USD is steady near 1.1650 as ECB’s Isabel Schnabel signals comfort with markets pricing in a potential future rate hike, BBH FX analysts report.

Swaps curve points to steady ECB rates and gradual hikes

"EUR/USD is firm near 1.1650. ECB Executive Board member Isabel Schnabel signaled she’s 'rather comfortable' with market expectations that the next rate move is going to be a hike. The swaps curve implies steady ECB rates at 2.00% over the next twelve months and a full 25bps rate increase in the next two years. EUR/USD needs to break above resistance at 1.1690 to gain upside traction."

US Dollar (USD) is likely to trade between 7.0620 and 7.0740. In the longer run, outlook for USD remains negative; the next level to watch is 7.0400, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Likely to trade between 7.0620 and 7.0740

24-HOUR VIEW: "We expected USD to 'trade between 7.0600 and 7.0745' last Friday. USD subsequently traded in a narrower range than expected (7.0629/7.0714), closing unchanged at 7.0712. Momentum indicators are mostly flat, and we continue to expect USD to trade in a range, most likely between 7.0620 and 7.0740."

1-3 WEEKS VIEW: "We turned negative on USD early last week. In our latest narrative from last Thursday (04 Dec, spot at 7.0565), we indicated that “the outlook for USD remains negative, and the next level to watch is 7.0400.” Although USD has not been to make further headway on the downside, we will maintain the same view as long as 7.0770 (no change in ‘strong resistance’ level) remains intact."

The US Dollar (USD) is mixed this morning, consolidating just above last week’s lows as investors await the New York Fed’s November survey of consumer expectations, BBH FX analysts report.

Consumer expectations survey in focus for Dollar sentiment

"USD is mixed and consolidating just above last week’s lows. The New York Fed November survey of consumer expectations is today’s highlight. "

"US inflation expectations are anchored around 3% and leaves room for the Fed to ease policy. Pay attention to the survey’s 'mean probability of losing a job'. Greater job insecurity will push households toward higher savings and constrain consumer spending activity."

• The Indian Rupee slides to near 90.50 against the US Dollar as FIIs continue to offload stake in the Indian equity market.
• The RBI cuts its Repo Rate by 25 bps to 5.25%.
• Investors expect the Fed to announce a hawkish cut on Wednesday.

The Indian Rupee (INR) trades lower against the US Dollar (USD) at the start of the week. The USD/INR pair jumps to near 90.50 as the Indian Rupee continues to underperform due to the continuous outflow of foreign funds from the Indian stock market, and a dovish monetary policy announcement by the Reserve Bank of India (RBI) on Friday.

So far in December, Foreign Institutional Investors (FIIs) have remained net sellers on each trading day, and have offloaded shares worth Rs. 10,403.62 crore. FIIs also remained net sellers in the last five months on a net basis.

Trade frictions between the United States (US) and India have remained a key concern behind FIIs' consistent selling in the Indian equity market. Analysts at MUFG have predicted that the Indian Rupee could depreciate further to near 92.00 against the US Dollar if a US-India bilateral deal doesn’t strike in the coming months.

On Friday, the RBI cut its Repo Rate by 25 basis points (bps) to 5.25%, as expected, and announced Open Market Operations worth Rs. 1 lakh crore and a three-year USD/INR swap of $5 billion. The RBI assured that both the headline and the core Consumer Price Index (CPI) could rise to 4% in Financial Year (FY) 2026-27. Taking strong cues from the Q3 Gross Domestic Product (GDP) data, the RBI has raised growth projections for the current fiscal year to 7.3% from 6.8%.

This week, investors will focus on the retail CPI data for November, which will be released on Friday. Inflation at the retail level grew by 0.25% in October on an annualized basis.

Daily digest market movers: Investors await Fed's interest rate decision, dot plot

• The Indian Rupee trades lower against the US Dollar on Monday, even as the latter trades with caution ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to hold its over five-week low of 98.75 posted on Thursday.
• According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87%.
• The odds of a December interest rate cut are high due to soft job market conditions. The major catalyst behind the recent surge in Fed dovish expectations was support for easing monetary conditions by New York Fed Bank President John Williams in late November.
• As traders are confident of a Fed interest rate cut on Wednesday, the major trigger for the US Dollar’s outlook will be monetary policy guidance for 2026. It is likely that the Fed will call for a pause in the monetary-easing cycle as inflationary pressures have remained well above the 2% target for a longer period.
• Investors will also focus on the Fed’s dot plot, which shows where policymakers see the Federal Funds Rate heading in the medium and longer term.
• Market participants would also like to know the current status of the labor market and inflation amid the absence of the latest Nonfarm Payrolls (NFP) and the inflation data.

Technical Analysis: USD/INR holds key 20-day EMA

USD/INR trades at 90.50 as of writing. The 20-day Exponential Moving Average (EMA) is rising and the pair holds above it, reinforcing a bullish short-term trend.

The 14-day Relative Strength Index (RSI) at 70.61 is overbought, pointing to stretched momentum. Initial support sits at the 20-day EMA at 89.54, while a clean break of all-time highs around 90.70 would open the door to further gains.

With price action tracking above a rising average, dip-buying remains favored in the near term. A pause or mild pullback could relieve overbought conditions without damaging the broader advance. Should the daily close slip beneath the 20-day EMA, the bias would shift toward consolidation; maintaining the current stance would keep the upside path in play.

After disappointing in October, Chinese exports returned to their growth path in November, rising again by 5.9% year-on-year. Exports in November were therefore not slowed down by the fact that the USD/CNY had recently fallen, reaching its lowest level since last summer – which means a stronger Chinese Yuan (CNY), Commerzbank's FX analyst Volkmar Baur notes.

Producer price deflation keeps China’s real CNY competitive

"In the current quarter, the CNY has even gained against all G-10 currencies so far and is only behind a handful of major currencies such as the South African rand and the Malaysian ringgit. One reason why this nominal appreciation of the CNY does not seem to be weighing on exports could be provided by the data to be released on Wednesday: the inflation figures."

"Despite the nominal appreciation of the CNY, the real CNY still looks somewhat different. Inflation, especially on the producer side, is still very low in China, which continues to benefit Chinese exporters despite a slight nominal appreciation of the CNY."

"For example, producer prices fell by 2.1% over the last 12 months, while they rose by 2.7% in the US. With an unchanged exchange rate, this development alone would therefore mean a cost advantage of around 5%. In real terms, the CNY therefore continues to weaken, still offering exporters a favourable environment."

• Euro recovery attempt against the Pound remains capped below 0.8750.
• Upbeat German Industrial Production and Eurozone sentiment figures have failed to boost the Euro.
• The Pound maintains a moderately bid tone with BoE speakers on tap.

The Euro is picking up from six-week lows around 0.8725 on Monday, but remains capped below a previous support area at 0.8750 so far. A mild improvement in Eurozone investors’ sentiment and the unexpected increase in German Industrial Production have failed to provide any significant support to the Euro.

The Eurozone Sentix Investors’ Sentiment Index picked up to -6.2 in December from -7.4 in November, according to figures released earlier on Monday. The Current Situation Index has risen to -16.5 from -17.5 in the previous month, while the Economic Expectations Index has shown the largest improvement to a reading of 4.8, from 3.3 in November.

Earlier in the day, data from Destatis revealed that German Industrial Production grew 1.8% in October, against the market consensus, which had anticipated a 0.4% contraction, and following a 1.1% rise in September. 

Also on Monday, ECB Executive Board member Isabel Schnabel affirmed that she feels comfortable with investors' bets that the central bank's next move will be a rate hike, as, in her opinion, the economy “has been much more resilient than could have been expected.” Later on, ECB member and Bank of Finland Governor Olli Rehn took a more neutral stance, calling for a “meeting by meeting” approach.

In the UK, the calendar has been void during the London session, which keeps the GBP on a mildly positive trend against most of its peers. Investors' relief triggered by the UK’s tax-rising budget is still in play, ahead of the speeches of Bank of England officials Alan Taylor and Clare Lombardelli, due later on the day.  

US Dollar (USD) is likely to trade in a range between 154.80 and 155.80. In the longer run, for a sustained decline, USD must first close below 154.65, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

A sustained decline may appear below 154.65

24-HOUR VIEW: "USD fell to 154.49 last Thursday and then rebounded. When USD was at 155.15 on Friday, we indicated that 'there is room for USD to rebound further, but any advance is likely part of a higher range of 154.65/155.60'. The subsequent price movements did not turn out as expected. USD dropped sharply, but briefly, to 154.32 before rebounding to close higher by 0.17% at 155.34. The brief drop did not result in any increase in downward momentum. Today, we expect USD to trade in a range, most likely between 154.80 and 155.80."

1-3 WEEKS VIEW: "In our most recent narrative from last Thursday (04 Dec, spot at 155.20), we highlighted that 'for a sustained decline, USD must first close below 154.65'. On Friday, USD briefly dropped to 154.32 and then rebounded to close at 155.34 (+0.17%). There has been no increase in downward momentum, and our view remains unchanged for now."