Last week's wobbles in equity markets and tech stocks did not carry over into currency markets.
G10 currencies traded in tight ranges. The only exceptions were the Swiss franc, which rallied hard on news of a trade agreement with the US that lowers tariffs to the European level, and the Japanese yen, down on renewed concerns about fiscal and monetary profligacy. Although the US government shutdown is over, uncertainty remains about which key missing economic reports will be released and when. The Federal Reserve’s December rate decision will be wholly dependent on this data, and currency markets are afraid to embrace any trends before the smoke clears on the state of the US economy.
The focus this week will be on the restart of US economic data releases, in particular, the delayed September payrolls report on Thursday. The minutes from the Federal Reserve's October meeting and UK inflation data on Wednesday, along with the G3 PMI business activity figures on Friday will also be keenly watched. We should have a clearer picture of the outlook for both the Fed and the Bank of England by the end of this week. As to the latter, the reaction from the gilt market to the latest budget headlines will be key for sterling.
GBP
The Labour government's complete turnaround on increasing income tax rates brought renewed nervousness to the UK bond market last week. Bonds sold off all day on Friday after the announcement, and the UK is once again leading the latest leg in the upward move of rates in G10 countries. UK stocks also underperformed amid fears over the government’s credibility, a possible breaking of Labour’s self-imposed fiscal rules and uncertainty as to how Chancellor Reeves will now plug the gaping hole in the public coffers.
Labour market data for September and October published last week confirmed the weakening trend in the jobs market, as unemployment ticked up and businesses continued to shed workers. Soft GDP figures capped a grim week for the UK and the pound. The sell off in the gilt market and stubbornly high inflation complicate what would otherwise be the Bank of England's obvious response to softening data: cutting rates.
EUR
The European Central Bank finds itself in an easier spot than the Bank of England, or the Federal Reserve for that matter. Its rate cutting cycle appears to be effectively done, and Euro Area inflation is close to the 2% target and is no longer trending upwards. The labour market is showing resilience, and the common bloc is still creating jobs overall, though with wide regional variations. Fears over fiscal deficits in France are, in our view, largely offset by optimism surrounding fiscal loosening in Germany, which is already beginning to be reflected in soft economic indicators. This supports our view for a gentle appreciation in the euro in the coming months.
There is not a huge amount of tier-1 economic news out of the Euro Area this week. Inflation figures for October will be released on Wednesday, although these are merely revised estimates, so will unlikely have too much impact on the euro. We will instead be placing a greater emphasis on Friday’s preliminary PMI figures for November, which are expected to show another month of solid growth in business activity. ECB President Lagarde will also be speaking towards the end of the week, but we doubt that she will rock the boat too much.
USD
The longest federal shutdown in US history finally drew to a close last week, as a deal between the Democrats and Republicans was struck that will fund the government through at least January. The very sparse private data published over the last two weeks suggests that net job creation has dried up recently, albeit there is still little sign of mass dismissals. The dollar has proven resilient, however, shrugging off both the uncertainty and the tentative evidence of a labour market cooling, in no small part due to the Federal Reserve's recent hawkish turn.
Another notable development is Trump's willingness to ease tariffs in order to try and lower the cost of living, an implicit acknowledgement that tariffs are inflationary, and that the average tariff level is more likely to move down than up over the medium term. As mentioned, all eyes this week will be on the long-awaited release of the September payrolls report, which will be out on Thursday, as opposed to the typical Friday release.
Deep dives and expert insights:
- G10 currency market report - Get the latest analysis on major currencies.
- CEE FX Outlook - November 2025
