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The DXY Index depreciated by 0.4% to 99.8, below the pivotal 100 level for the first time in a week. Markets have revived bets for the Fed to deliver another insurance rate cut at the next FOMC meeting in two weeks, a view reinforced by yesterday’s sharp drop in consumer confidence and a weaker-than-expected ADP report pointing to a softening US labour market. The Treasury 10Y yield eased 2.9 bps to 3.996%, below 4% for the first time in a month, pricing out Fed Chair Jerome Powell’s comment at the October 29 FOMC that a December cut was not a forgone conclusion. A 25-bps cut on December 19 would lower the Fed Funds Rate to 3.75-4.00%. The Fed enters a pre-FOMC blackout period for communications next week.
The US Conference Board reported a 6.8-point tumble in November’s consumer confidence index to a seven-month low of 88.7. Anxiety increased over prices and inflation, tariffs and trade, and politics surrounding the recent government shutdown. Over the next six months, households grew more pessimistic about future business conditions, income prospects, and job availability. Meanwhile, payroll processing firm ADP reported that private companies shed an average of 13.5k jobs per week over the past four weeks, up significantly from 2.5k in the previous update.
Today’s Fed Beige Book will likely reinforce the story of a cooling but not collapsing US labour market, with markets laser-focused on how it describes the labour market, consumer spending, and price pressures. The last report already described employment as largely flat with muted labour demand. Today’s report will likely push a bit further in that direction, with more mentions of hiring freezes and selective outright layoffs. Meanwhile, some surveys also show US consumers planning to cut spending this Black Friday for the first time in years, citing affordability concerns.
GBP/USD’s recovery from 1.30 underscored the soft tone of the USD, especially because GBP has been weighed down for weeks by pessimism surrounding today’s UK Autumn Budget. Markets had largely priced in the UK’s fiscal constraints from Chancellor Rachel Reeves’ self-imposed rules and risk of growth-dampening measures such as tax hikes. GBP/USD may extend its recovery above 1.32 if Reeves delivers the predictability markets seek: a budget that reinforces fiscal prudence, avoids unfunded commitments, and combines growth-friendly measures that align with the Bank of England’s mild easing bias.
Apart from the GBP, the other notable weak currencies to watch for a recovery are the NZD, for the Reserve Bank of New Zealand’s signal that it is at the end of its rate-cutting cycle, and the JPY for intervention risks. After today, expect market activities to slow and positions to be lighter into the long Thanksgiving weekend, encouraging investors to lock in profits. US markets return on December 1, the day the Fed ends quantitative tightening (QT), removing the liquidity scarcity premium that underpinned the USD over the past few years.
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